How much consideration have you given to planning for your estate? How do you imagine the future to look once you are no longer living? Will your loved ones be provided for or will they struggle in a way that could have been prevented? Will the things you hold dear be cast off by those who do not appreciate its value? You can answer these questions with confidence if you capture your wishes in an estate plan, including a will, which is customized for your needs. However, if your will is never created, your instructions remain undelivered and no other paperwork is legally binding to represent your estate. In such a case, your family will not have a say over your estate. Instead, a judge will make choices for your assets (including your small children) without your input.
When is Estate Planning Necessary?
The two biggest priorities for most people when planning their wills are taking care the special people in their lives and their assets.
People planning is providing enough income or capital or both to the people and organizations you love. People planning may also mean keeping your favorite aunt’s brooch in the family and out of the pawnshop or preserving the business started by your grandfather. People planning is especially important to people with (1) minor children, (2) exceptionally artistic or intellectually gifted children, (3) children who are emotionally, mentally, or physically handicapped, and (4) spouses who cannot or do not want to handle money, securities, or a business.
Asset planning involves arrangements to reduce taxes for people with taxable estates exceeding the “exclusion amount” ($5.49 million in 2017). Asset planning is also important for estate owners holding property in more than one state.
Strategies to Reduce Estate Taxes
Given forethought and proper planning, you can reduce the amount of taxes that will be levied against your estate. This can dramatically affect the amount of inheritance money that remains for your family. The following are three strategies to reduce the amount of taxes excised against your estate:
Divide – Create additional tax-paying entities by giving income-producing property to children either directly or in the form of a trust.
Defer – Defer tax to a later time so that the saved money can be invested for longer periods (e.g., through nonqualified deferred compensation plans, installment sales, annuities, qualified retirement plans, Series EE bonds, stocks that have high appreciation but pay no or low dividends, life insurance policies, and depreciable real estate).
Discount – Life insurance can be used to, in effect, pay estate taxes at a discount, because the death proceeds are excluded from the taxable estate and can be used to pay estate taxes, debts, and other administrative expenses.
As always, Allen & Company is available to assist you in creating strategies that will benefit your estate or to answer any other tax-related question.
Michael Allen, CPA
Allen & Company, PC
(770) 428-6229 (T)
(770) 425-5481 (F)