Did you know that less than one percent of people in the United States of America owe taxes on their estate after passing away? If you have a significant amount of wealth and you’re nearing the end of your life then you owe it to your descendants to take care of your tax and estate planning in order to get an estate tax return.

Estate taxes are a big consideration if you plan on passing your wealth on, and it’s encouraged to find the best estate tax lawyer to prepare for the future. It’s the best way to ensure that your money transfers to your children and close friends in an efficient manner.

The good news is that you’re in the right place to learn more about taxes on your estate and the things that you need to know for tax and estate planning. Keep reading to learn more today!

What Is Estate Tax?

Tax on Rental Properties

Estate taxes are what you should expect to encounter if you’re inheriting money from a parent or relative which is a significant chunk of change. These taxes come from both the federal and state level and they’re based on the present market value of the assets rather than what was paid for them.

That might seem like a bad thing at first glance, but it ends up protecting you if the market starts to fall and your assets lose some of their value. One thing to remember is that the assets that you pass on to your spouse are not taxable by the state or federal government. A good estate tax attorney will help you look into the best strategy for estate tax planning.

If you pass your wealth and assets on to your surviving spouse then you won’t have to worry about facing taxes on your estate. After your spouse passes away, the beneficiaries will face the possibility of paying those taxes.

You won’t need to worry about facing federal estate taxes unless you stand to inherit more than $12 million from your deceased loved one. Remember that your estate tax lawyer will help you find as many deductions as possible to keep as much of that money as you can.

Minimizing Taxes on Your Estate

The best strategy to use if you want to get a large estate tax return and avoid estate taxes as a whole is to work with an estate tax lawyer to come up with a plan. Keeping your wealth below the estate tax threshold is one of the most effective ways of protecting your wealth from the IRS.

For families that have wealth beyond the threshold, your best bet is to set up a trust with an expert estate tax attorney in your area. These trusts are a great option because they allow you to transfer the wealth to your loved ones without putting a large tax burden on them.

Intentionally defective grantor trusts are a popular option since the trustor is allowed to isolate certain assets. Taking this step makes keeping income tax separate from estate tax a breeze for those isolated assets. You’ll need to pay income taxes on revenues from those assets but they’re good to grow in a tax-free manner.

Life insurance policies are another option if you want to get a great estate tax return. Any proceeds that come from a life insurance policy are tax-free from the federal government. Try to avoid lumping that money in with the taxable estate if you wish to minimize your taxes.

Property Tax

Which Assets Are Subject to Estate Taxes?

Any assets that a deceased person plans to pass on to family members and friends are subject to estate taxes if they’re worth more than the set taxable rate. As of 2022, that dollar amount is $12.06 million. You also need to consider whether or not your state charges estate taxes.

Twelve different states charge estate taxes, along with the District of Columbia. If you live in one of these areas then you could face significant estate taxes from both the federal and state levels. Working with an estate tax lawyer will help you understand what you should expect to pay and what you’ll get back from your estate tax return.

If you’re facing paying taxes on your estate then it’s important to know the tax rate on what you’ll owe. Estates that are worth more than $12 million will be staring squarely at a 40 percent tax rate on the assets that they’re inheriting.

Other Strategies for Avoiding Estate Taxes

You can use a few different strategies if you’re looking to avoid paying taxes on your estate. A great option that you can use is spending your assets to get below the tax threshold. Avoid this option if you’re worried about running out of money prior to passing away.

Some people opt to spread their assets around rather than passing them on to only a few people. You can give your assets away to a number of friends and family members prior to passing away in order to avoid putting the tax burden on your beneficiaries.

Professional tax preparer

Charities are another viable option if you want to give your wealth to a cause that you find important. Your beneficiaries can deduct the wealth that you’re donating to charity from the total value of the estate.

If worse comes to worst, you can always look into moving to a state that has a more favorable tax environment. Most states don’t have an inheritance or estate tax. You’ll need to do your research to find the right state for you and your family, but it will save your loved ones millions.

Make the Most of Your Estate Tax Return

Getting a large estate tax return seems tricky, but getting help from an expert estate tax attorney will go a long way toward ensuring that your wealth ends up in the right places. It’s worth it to invest your time and resources into tax and estate planning before you pass away since it could save your beneficiaries millions of dollars in taxes.

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