How to Limit Taxes with Estate Planning
Avoiding gift taxes, estate taxes and inheritance taxes can be important if you want to preserve as much of your estate as possible for beneficiaries. Some taxes receive assessment on both the state and federal level, making inheritance laws even more complicated. Despite the complexity of these laws, estate planning lawyers train themselves to understand how to effectively advise those who wish to preserve their assets for their loved ones.
What Do I Need to Know About Estate Taxes?
Estate taxes and inheritance taxes are separate methods of taxation. The estate tax simply applies to the estate that an individual leaves behind. The federal government enforces this tax, and some states – including Illinois – apply this tax.
Federal law currently permits an individual to leave heirs with an estate of $5.25 million before taxes set in. This does not include a spouse, who can inherit all your assets tax-free so long as this individual is a United States citizen. After the exemption amount, the estate tax applies to 40 percent of the excess beyond this exemption. Illinois sets its exemption amount at $4 million and taxes 16 percent of the total beyond that amount.
The inheritance tax applies to the amount received per each of the heirs, meaning that they pay this tax once they receive their inheritance. A minority of states uses this tax, but Illinois has no state inheritance tax.
How Can I Lower My Estate Taxes?
The following methods may be beneficial to use to ensure taxes do not limit what your beneficiaries receive, such as:
- Creating a trust – Trusts allow you to set funds aside and save them for your beneficiaries. You lose access to the money in a trust, but when your beneficiaries receive their inheritance, the amount in a trust will go directly to them without counting toward the estate tax. You can even use a spousal lifetime access trust, which grants you the benefits of a typical trust while allowing your spouse to have access to the trust.
- Gifting – Possibly an easier solution is just to donate to future beneficiaries. Federal laws allow one individual a $5 million lifetime gift allowance and $14,000 a year to any one person before incurring the gift tax. You may also pay private school, college tuition or medical bills for an individual if you pay the provider directly without it counting toward your lifetime gift tax exemption.
A Hoffman Estates attorney can offer other custom solutions for you to save your inheritance for your beneficiaries through effective estate planning.
Find an Estate Planning Lawyer to Help You Limit Estate Taxes
At Pluymert, MacDonald, Hargrove & Lee, Ltd., our attorneys are committed to working with those who wish to prepare their estates for the future. We offer excellent service and experienced legal counsel, so call us today at 847-310-0025 to discuss your needs with an experienced Hoffman Estates lawyer.