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Leaving Assets to Your Loved Ones Tax-Free
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Few of us will ever need sophisticated estate planning strategies. As of 2013, each couple can gift up to $10.5 million dollars tax-free. Anything valued in excess of this amount whether it be properties, fine art or automobiles will be taxed during the closing of the estate or probate. Studies show that the wealthiest of us spend more than 50% of our salaries paying taxes throughout our lives. Federal taxes, state taxes, property tax etc. can easily consume more than 60% of our total net worth. Losing almost another 40% of our estate's value on our passing can be a devastating financial blow. But it doesn't need to be this way- there are various legally sound methods to reduce or eliminate your tax burden.
One of the most popular methods of zero tax planning is gifting. Using this tool you can steadily gift away up to $14,000 a year to a relative or beneficiary, tax free. If you are married then each spouse can give $14,000 a year to the same person, making the total gift tax exemption $28,000 annually. By gifting to loved ones, relatives or their children we can quickly reduce the value of an estate. This can also help mitigate effects of "sudden wealth syndrome", which can happen when a person is given a large lump sum at once. This way your estate can be divided during your life, gradually and at a pace you determine.
Another popular financial tool for zero tax plans is charitable giving. There are two benefits here: not only are you escaping the heavy estate taxes levied against you by the IRS but you are also supporting the charity of your choice. In order to qualify the organization must operate, "exclusively for charitable, religious, educational, scientific, or literary purposes, or for the prevention of cruelty to children or animals.” To find out if the charity of your choice is a federally licensed 501(c)(3) organization, visit the IRS website to see if they qualify. Although there are many financial tools used in zero tax planning, one such option is a charitable lead trust. Here the philanthropic organization will collect the interest on the trust's assets for 10-20 years. At the end of the term the remainder can be gifted to a noncharitable person, such as a beneficiary or even yourself. This is a popular choice for many individuals as it allows the assets to depreciate to a less taxable amount and provides for both a beneficiary and a charitable organization.
Through careful planning we can maximize our income both during life and after death. Failure to enact a careful estate plan can result in a devastating tax bill for your loved ones. By visiting a estate planning attorney in your area, you can maximize the value of your life's work and see your family taken care of for generations to come.