High Net-Worth Estate Planning: 5 Potential Methods to Help Minimize Estate Tax Liability

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When someone passes away, his or her estate may be obligated to pay federal estate tax before beneficiaries are able to receive their inheritances. There are exceptions to this type of tax; most middle class individuals are able to avoid it all together. For those with a high net-worth, however, it could result in a huge tax burden falling on loved ones.

As of 2017, the estate tax exemption is at $5.49 million (up to $10.98 million for couples, if handled properly), so this really only applies to those with a significant amount of wealth. For those whose estates do have to pay this tax, however, the maximum rate is currently 40%. For those with large estates, it is essential to start taking steps today to minimize or eliminate the tax burden that will fall to your loved ones when you pass away. The following are some options that may apply to your situation.

Double Your Estate Tax Exemptions Through Proper Estate Planning

Every citizen and resident of the US is allowed to leave an unlimited amount of assets to their U.S. citizen spouse at death. This helps to ensure the surviving spouse won’t need to liquidate an estate when the first spouse passes away. With proper estate planning, both spouses will be able to take advantage of this benefit. This is done either by distributing the assets of each spouse to a credit shelter trust upon death or through proper use of the unlimited marital deduction and portability election on the estate tax return of the first spouse to die. For high net-worth couples, this can help to avoid thousands, or even millions, in estate taxes.

Take Advantage of Tax-Free Annual Gifts

Federal laws allow people to give away up to $14,000 ($28,000 for married couples) each year to others without any tax consequences. There is no limit to the number of people to whom this type of gift can be given. For those with significant assets, giving loved ones a portion of their inheritance each year will reduce the overall size of the taxable estate at death. In addition to being a smart way to avoid estate taxes, many people enjoy being able to watch their loved ones benefit from their inheritance.

Charitable Trusts

For those who are charitably inclined, charitable trusts can be a terrific way to do good while saving on taxes at the same time.  Charitable trusts are exempt from capital gains and estate taxes upon the death of the grantor (or creator of the trust), so significant savings may be derived from their use.  Highly appreciated assets are often a great choice to contribute to a charitable trust.  

Family Limited Liability Corporations & Family Limited Partnerships

Discounted valuations may be available for minority interests in entities like FLLC’s and FLP’s.  Such discounts typically might include a lack of control and lack of marketability.  This technique must be used with caution, though, as the IRS has shown an increased willingness to challenge discounted valuations.

Talk to an Attorney

The last but likely most important strategy is to speak with an experienced estate planning attorney. An attorney will be able to look at the specifics of your situation and help you to take the right steps to reduce or eliminate the taxes your estate may have to pay. Contact The Law Offices of John Mangan, P.A. to go over your options for planning your estate today.