Additional Tax Strategies

Single people and married couples whose estate exceeds twice the unified credit need additional strategies to reduce their estate tax exposure.  Following are a few of these strategies.

Gifting - Gifting is one of the simpler methods of tax planning.  It takes advantage of the fact that every individual has an annual exclusion that allows them to gift a certain amount per year to anyone tax free.  Once assets are gifted out of your estate, they can not be included as part of your estate for tax purposes.  The annual exclusion is $13,000 as of 2010. The drawbacks of gifting are that it can take quite a while to make a dent in a significant estate. Also, the gifts must be unconditional, which means it should only include gifts that will never be needed.  There are also ways of leveraging gifts through family businesses to increase the amount that can be transferred.  Learn more...

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Charitable Donations - Estate taxes allow an unlimited charitable deduction. Therefore, individuals who think they can decide better than the government how their life's savings should be spent, can choose a favorite charity or charities to donate money that would otherwise be lost to taxes.

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Life Insurance Trust - The irrevocable life insurance trust, or ILIT, takes advantage of the fact that life insurance on one person but owned by another is not included in the taxable estate. This allows the individual to gift otherwise taxable dollars which can then be used to purchase life insurance. This strategy allows taxed dollars to be replaced by insurance proceeds and can also be used to enhance an estate tax free. This strategy has the same drawbacks as gifting. The gifts must be unconditional and are therefore permanently gone. Also, an heir may choose not to use the gift to pay the life insurance premium thus disrupting the plan.

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Pension Recovery - Deferred or qualified funds acquired over a lifetime can be completely exhausted at death. They are often subject to both estate and income taxes. This can mean none of the value of these assets remain for the heirs. However, through a process known as pension recovery, these assets can be converted to a life insurance policy that will ensure the entire value is available to the heirs. Only funds that will not be needed during your lifetime should be used. saves qualified funds if not needed to live on.

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Schedule a free consultation to learn more about these and other tax saving strategies?