Minimizing tax implications with estate planning

On Behalf of | Dec 13, 2023 | Estate Planning

Estate planning may not be the most thrilling topic, but when it comes to passing on your property, it can make a significant difference in minimizing the impact of taxes.

With thoughtful estate planning, you can strategically position your assets to minimize the tax bite.

Leveraging the gift tax exclusion

One effective strategy is taking advantage of the gift tax exclusion. Rather than waiting until after you are gone, consider gifting assets to your heirs during your lifetime. The IRS allows you to give a certain amount each year to each individual without incurring gift taxes. For 2024, the IRS raised the annual exclusion for gifts to $18,000. By doing this strategically, you can reduce the overall value of your estate subject to taxation.

Establishing trusts for tax efficiency

Trusts can be powerful tools in estate planning. By placing assets into various types of trusts, you can exert control over their distribution and potentially reduce the tax liability. For instance, a bypass trust can ensure the utilization of both spouses’ exemptions, maximizing the amount that can pass tax-free to heirs.

Optimizing the step-up in basis

Another consideration is the step-up in basis. When inheriting property, its value adjusts to the current market value, eliminating any capital gains taxes owed if you sold the property. Careful planning can help ensure that your heirs benefit from this step-up, preserving more of the property’s value.

Estate planning is not a one-and-done task. Tax laws can change, and your financial situation may evolve. Regularly reviewing and updating your estate plan can help ensure it remains aligned with your goals and takes advantage of any new opportunities to minimize taxes.