If your wealth continues to grow, you may worry about taxes. There are several kinds of taxes that might be of concern to you during your lifetime, but what about those that are due after your death?
To help you sleep better at night, here are five strategies for minimizing the impact of your estate taxes.
The big picture
Death taxes come in two forms. Your beneficiaries will have to pay inheritance taxes on the distributions they receive from your estate. Estate taxes, on the other hand, are imposed on your estate before those distributions are ever made. In 2019, you must exceed the per-person exemption of $11.4 million before you owe estate taxes. However, if you are among those who must pay, you have options for minimizing the tax bite.
- Leave money to your spouse
As long as your spouse is a U.S. citizen, you can leave him or her an unlimited amount of money without having to incur any tax.
- Donate to charity
Money donated to approved charities when you die is exempt from estate tax.
- Give money away during your lifetime
The annual gift tax exclusion is $15,000 per person. Therefore, while you are still alive, you can enjoy giving money away to your ultimate beneficiaries as tax-free gifts. You can also provide tax-free gifts for tuition or medical expenses on behalf of a family member or contribute to a political organization.
- Create an irrevocable trust
If you purchase life insurance or make your estate the beneficiary of your policy, those proceeds will be part of your taxable estate. However, you can remove the value of the policy from your estate by establishing an irrevocable life insurance trust.
- Set up your estate plan
When you are thinking about minimizing taxes, it is probably a good time to create an estate plan. If your attorney also has a background in accounting, this is so much the better for ensuring that your plan incorporates the strategies that will work effectively for your particular circumstances.