The Best Ways to Lower Estate Taxes Through Smart Planning

By Tom Nonmacher

Hello, fellow money savers! Today, we're going to dive into a topic that's often overlooked in the realm of financial planning, yet has the potential to save you a significant amount of money: lowering estate taxes. Yes, it might seem a bit morbid to think about what will happen to your assets after you're gone, but smart planning now can ensure your loved ones don't get hit with a hefty tax bill and can enjoy the fruits of your hard-earned wealth without unnecessary financial burden.

The first thing you should know is that the federal government offers an exemption on estate taxes, which means that a certain amount of your estate will not be subject to tax. As of 2022, this exemption is $11.7 million per individual and $23.4 million per couple. If your estate is worth less than these amounts, there's no need to worry about estate taxes. However, if your estate exceeds these amounts, read on for some strategies to lower your estate tax bill.

One of the best ways to lower estate taxes is to give gifts while you're still alive. The IRS allows each person to give up to $15,000 per year to any number of individuals without incurring gift taxes. This means that you and your spouse could collectively give away $30,000 per year to each of your children, grandchildren, or any other individuals, reducing the size of your taxable estate without any gift tax implications.

Another smart strategy is to establish a trust. There are several types of trusts that can help reduce estate taxes, but one of the most common is the irrevocable life insurance trust (ILIT). With an ILIT, you transfer your life insurance policy into the trust and no longer own the policy, which means it's not included in your taxable estate. Furthermore, the death benefit payout is not subject to income tax for your beneficiaries.

You might also consider charitable giving as a way to reduce your estate tax. By leaving a portion of your estate to a qualifying charitable organization, you can reduce the size of your estate and, consequently, the amount of estate tax due. Plus, you'll be supporting a cause that's important to you.

Finally, remember that estate planning is not a one-time event. It's an ongoing process that should be reviewed and updated regularly, especially when major life events occur such as marriage, birth of a child, divorce, or death of a spouse. Working with a qualified estate planning attorney or financial advisor can ensure that your plan is up-to-date and as tax-efficient as possible.

Remember, friends, smart planning today can save your loved ones from unnecessary financial stress in the future. And that's a gift that keeps on giving. Until next time, keep saving and planning smartly!

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