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How to Reduce Your Estate Taxes as Much as Possible

Federal estate taxes are fees for transferring your property at the time of your death. The federal estate tax rate may reach up to 40% of the gross estate. However, these rates may vary depending on individual circumstances. Think about it this way; if you die tomorrow with about $6 million in assets, the federal government may tax the excess and take their share as well. Financial experts urge individuals to ensure their hard-earned money will be allotted for significant and essential purposes, especially if you still have some family left.

Unfortunately, most people tend to neglect the possible consequence of taxes on inheritance value. That is why tax planning is a crucial step to take. Here are some strategies you can follow to help minimize or even get rid of your estate taxes. Remember that you must consult financial planners or estate planning lawyers when you plan to take these strategies into account.

Distribute assets while you’re still alive

The easiest and most effective way to reduce your estate taxes and protect your assets is to transfer them while you’re still alive. You can do this through gift payments, which is the process of directly paying medical providers or educational institutions for your loved ones to benefit from in the future. In this way, your children and even grandchildren will be all set for college. At the same time, they will no longer worry about unexpected hospital bills or budget for medications. Another way is to donate an amount to charitable organizations or significant research facilities like COSM so that you can aid more deserving individuals with the use of your money. On top of that, these gift payments will no longer be taxed. Therefore, you can make sure that your money will only go to your preferred receivers.

Store assets in a trust account

This method allows you to place your assets in the safekeeping of a trustee, who can also be a family member you trust, to be transferred to the beneficiaries when the time comes. Through this, you can protect your assets from massive estate taxes and guarantee that your beneficiaries will be getting all the assets you’ve allotted for them.

Though trust is known to be a sufficient tax and estate planning tool, it is crucial to identify the appropriate and fitting type of trust to fit your circumstances with a financial advisor’s help. There are many types of trust at hand, and the effectiveness of using this strategy will depend largely on what kind of trust you choose. If ever you end up having a trust that may not exactly be suitable for your needs, it would not help you at all. It may even bring in more complications and issues along the way.

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Buy extra insurance

Acquiring irrevocable life insurance trusts are useful strategies that let you place your proceeds into a trust so that you can eventually use your life insurance funds to pay for estate taxes. This strategy is done to make sure that you will be getting tax-free proceeds. Basically, having an irreversible life insurance trust can cater to your entire estate taxes and help you reduce these fees since the policy is put in trust, which results in the revocation of your title as the owner. As a result, the proceeds will not be considered a part of your estate. It is essential to keep in mind that setting up an irrevocable life trust is to purchase the policy. If not, the policy’s value may be added to the estate and lead to the tax bill becoming even higher.

Make use of your exemptions

Persons with a lifetime exemption from estate tax liabilities are usually granted an exemption commonly exercised upon the person’s death in question. However, it can be used whenever to send away assets and avoid the payment of taxes. For example, you can use this to establish a business that may significantly grow in value as the years go by. You will no longer need to worry about taxes as soon as you gift the assets and avail of the exemption limit at the same time.

Stressing over estate taxes can be managed through the different strategies and methods of evading estate taxes mentioned above. As long as you are well-acquainted with the strategies and have an experienced financial planner guiding you to make the right decisions, everything will more or less work out in the end. Make sure to find the best professional that can accurately and effectively cater to your needs.

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