If you have a sizeable estate, you may have concerns about a lot of it going toward taxes. You do not want your wealth going away through taxes instead of to your family, but you may assume it is impossible to avoid it if you have a multi-million dollar estate.
However, it is possible to reduce or even eliminate the death tax. Here are some strategies to minimize your estate tax liability:
1. Gift your money
One effective way to avoid paying the estate tax is handing out gifts to your family. According to SmartAsset.com, single people can give up to $14,000 per person, while married couples who are filing jointly can give up to $28,000 per person, per tax year. As of 2018, you can give up to $11.1 million in gifts over your entire life without paying the gift tax. This can bring the value of your estate down and the money is tax-free for the people who receive it.
2. Donate to charity
You can also give money to charity to reduce the value of your estate. Here are some ways you can accomplish this:
- Establishing a charitable remainder trust
- Creating a charitable lead trust
- Setting up a donor-advised fund
If you strategize correctly, you can give money to a good cause all while getting a tax deduction, avoiding the burden of the estate tax and eliminating the capital gains tax.
3. Establish a trust
If you do not have a trust yet, you should seriously consider one. A trust is a great way to protect an estate with significant wealth. You may especially want a trust if you have concerns about your heirs being wasteful with their inheritances. A trustee can distribute your wealth according to your stipulations.
The ever-changing tax laws and the complexities of estate planning may make the idea of avoiding the estate tax intimidating. However, with the right strategy and assistance, you can do it.