Nobody likes paying taxes. While most can agree that they’re necessary for the overall good of the public, they can also agree that they wouldn’t mind paying a little less.
Fortunately, multiple estate planning tools can help you minimize your tax bill.
Preserve more of your wealth
Estate planning helps ensure your assets are managed when you die or if you become incapacitated. However, it can provide ways to reduce the financial burden on you and your loved ones. Some key strategies to minimize taxes include the following:
- Gifting allows you to reduce your taxable estate by transferring assets to your beneficiaries during your lifetime. According to the IRS, you can give up to $18,000 per person annually without incurring a gift tax. In addition, California has no additional state gift taxes, making this a straightforward way to reduce your estate size and tax obligations.
- Trusts are another estate planning tool for reducing tax liabilities. While there are many ways to set up a trust, there are two main types: Revocable living trusts enable you to manage your assets while alive and ensure a smooth transition after death. While they don’t help minimize taxes, they do avoid probate, which saves your beneficiaries time and money. Assets placed in an irrevocable trust are no longer considered part of your estate, thus lowering the taxable amount.
California doesn’t impose an estate tax, but the federal estate tax exemption is $13.61 million per individual. Therefore, any estates below this threshold don’t need to pay an estate tax. By efficiently using trusts and gifting strategies, you can ensure your estate remains under the limit. You should start your estate planning early to have more options to reduce your tax liability. Finding the right strategy can be complex, so it’s essential to work with someone knowledgeable in this area.