Ways to Minimize the Impact of Estate Taxes

The passing of a loved one can be stressful enough when relatives have to both grieve and settle the affairs of the deceased. One of these considerations is the payment of estate taxes (also known as death taxes). An estate tax is the taxation of all the property held by an individual at the time of their death and before any transfers are made. However, the levy of these taxes does not have regard as to how it is disbursed. State taxation agencies and the Federal Internal Revenue Service administer estate taxes. Although estate taxes are mandatory when they are levied, there are ways to minimize the impact of those taxes.

Changing the Valuation Date

In Florida, there are no estate taxes where the individual dies with less than the exemption amount. In addition, Florida does not have inheritance tax, which means the heirs and beneficiaries of property will take such property free of taxes. Where taxation applies, a change in the valuation date can make a difference as to the amount owed. The valuation date is the date on which the value of the estate is calculated. This date is not set in stone as federal law allows for alternative dates or the use of a date other than the date of death. Changing the valuation date is beneficial when the market has experienced a downturn. For example, if a residence was valued at $800,000 on the date of death, but the value of that property fell to $700,000 eight months later, using the later and alternative date can bring down estate taxes.

Marriage

The use of a marital relationship is another way to minimize estate tax liability. The federal estate tax exemption permits individuals to leave certain amounts to their heirs and beneficiaries without paying any estate taxes. Each year, this amount is set and rises and falls with inflation. As of 2011, there is a federal estate tax exemption that permits portability between married couples. If a spouse dies in 2011 or later, any unused portion of his or her estate can be combined with that of the surviving spouse’s exemption. Thus, a married couple can distribute up to $10,000,000 or more tax-free.

Use of Irrevocable Trust

Establishing an irrevocable trust is another way to lessen or avoid the impact of the estate tax liability. This technique works best for individuals who have certain assets set aside for family members and friends. When there is transfer of the assets into an irrevocable trust, the terms of the trust formation is set at its inception. Thus, the principal that will be transferred can avoid the estate tax obligation at the time of death. There are certain risks associated with irrevocable trusts, which include the loss of control over assets. Still, if an individual has large assets, it is the best way to take it out of the realm of estate taxation.

West Palm Beach Estate Planning Attorney

It is important to involve an attorney if you are thinking about how to best minimize or lessen the impact of estate tax liability. Call the Law Offices of Larry E. Bray, P.A. in West Palm Beach to determine which process best suits your estate planning needs.

Resource:

law.cornell.edu/wex/estate_tax