How To Protect Your Assets With Estate And Tax Planning
Paying taxes doesn’t end when you die! The only way to protect your assets from taxation is with proper Estate and Tax Planning. It is important to plan where your money goes if anything were to happen to you. This will ensure your family and friends are well taken care of. Creating an estate tax plan is the first of many steps. Keep reading, if you want to find out how you can do this.
What Is Estate Tax?
An estate tax is a levy on your assets after you die. Your estate will pay this due if the value of your assets is more than the limit set by the government. The tax value of your estate is the sum total of your assets with liabilities subtracted. There are other deductions for legal fees incurred from settling your estate. Your heirs will only pay tax on the excess of your taxable estate. The tax rate is pretty expensive and that is why you need planning.
How Does Estate And Tax Planning Work?
This involves the planning of how your estate is to pass after your death. It includes details of its management, distribution and settlement of the estate tax. If you don’t plan, you can lose a lot of your life’s work to estate taxes. So, you need to find ways to reduce the tax burden and take advantage of tax loopholes. This is a lot of work to do on your own. So, you need expert help, to avoid making mistakes. Here are some ways you can preserve your estate:
#1. Give Out Gifts
One way around estate tax is to distribute gifts among your family members. There is no limit on the number of people you can give gifts to. So you can make this a gradual process, for as long as you can. If you run a business, you can pass it to your spouse or create a spousal trust.
#2. Buy Life Insurance
Purchasing an Irrevocable Life Insurance Trust (ILIT) will reduce your tax obligations. This will put your family and dependents in a better position when you’re gone. Life insurance on its own is not taxable. Yet, after your death, it becomes part of your estate which is taxable. The Irrevocable Life Insurance Trust is a way to navigate this. It creates a trust and transfers ownership to another person. By doing this, your death benefits are no longer part of your estate. This is unless you die within three years of creating the trust.
#3. Donate To Charity
Another way to protect your assets is to transfer some of your wealth to a charitable trust. This will lock your money away and pass it to a tax-exempt charity when you die. Doing this will also reduce the value of your estate, also giving you a tax deduction. The trust will pass to your beneficiaries after your death.
Estate and Tax Planning will protect your assets even after your death. You can reduce your tax burden and determine how your assets are to pass. To start this process, speak to a financial advisor at Tax Prep Buddies to know your options.