There is more to estate planning than just deciding who gets what. It’s also about minimizing the tax burden on your estate and loved ones. After all, the goal is to leave more for your loved ones — not the IRS.
The more tax-efficient your estate plan is, the less of your hard-earned assets will go to taxes. Here are some strategies to keep taxes from considerably eating into your estate.
Consider trusts
Trusts offer several benefits, especially when it comes to tax savings. For instance, creating an irrevocable trust and transferring assets into it reduces your taxable estate. This means the trust assets will not count when calculating your estate taxes, which can save you a considerable amount.
Gifting during your lifetime
The IRS allows you to give up to a certain amount per person each year without triggering gift taxes or reducing your lifetime estate tax exemption. As such, you can gradually transfer wealth to your heirs while reducing the size of your taxable estate, which is a win-win situation.
Plan for retirement accounts
Retirement accounts have their own tax rules that can impact estate taxes, so it’s prudent to plan accordingly. For instance, traditional IRAs and 401(k) accounts are often subject to income taxes when inherited by beneficiaries. Converting them to Roth IRAs or using trusts to distribute these assets can reduce the tax impact on your beneficiaries.
Crafting a tax-efficient estate plan may require some adjustments or seem complicated, but the benefits can be well worth the effort. That said, it helps to remember that the laws surrounding taxes and estate planning are complex and ever-evolving. Seeking personalized legal guidance can help you make informed decisions that fit your goals and financial situation.