Top Steps For Minimizing Estate Taxes
March 10, 2015
Worried about estate taxes? If you want to generate the lowest burden possible, follow some basic steps to ensure the proper way of minimizing estate taxes
1) Planning is crucial:First and foremost when it comes to minimizing estate taxes, keep in mind that a failure to plan is a plan for failure. While many believe they do not need to take crucial action simply because they do not meet the federal exclusion amount, which is $5.43 million in 2015, this perception is simply not true, personal finance expert Mike Piper wrote recently in The Wall Street Journal.
2) Conduct an inventory of items:Creating an inventory of valuable items can make it far easier to determine where they should go is another great way of minimizing estate taxes. Another good way to start is to simply go through your home and tally all objects worth $100 or more. For example, you might want to include items such as televisions, computers or vehicles. Aside from monetary worth, there is also sentimental value, and specific items mean a lot to people. After compiling a list of physical items, move on to intangibles. For example, you could include any money you have in your bank account, 401(k) plan and brokerage account. In addition, covering any insurance policies – whether those are for life, long-term care or health – is important.
3) Create a will:Once you have determined your items of value, create a will to ensure assets are divided in the manner you see fit. Be sure to develop one of these documents and ensure it is up-to-date. If you have children who are minors, having a will becomes even more important, because it will name their guardians. In addition, passing away without having a will can deprive heirs of the assets they would receive.
4) Look into trusts:While you may not need a trust to achieve your goals, exploring these legal mechanisms certainly can’t hurt. Some believe that trusts exist only for the wealthy, but this is a common misconception. By establishing one, you can potentially enjoy many benefits, for example passing on resources without having to go through probate court. Some of these legal mechanisms will also protect your resources from lawsuits and creditors.
5) Select an estate administrator:When picking out an estate administrator, be sure to select an individual who enjoys sound mental health and would be responsible. Before determining who will fill this role, it is important to consider different prospects, and also how your death could affect their emotions. In addition, be sure to avoid automatically assuming your spouse should have this particular responsibility. While you do need to have the proper plan in place to minimize estate taxes, all of this will go to waste without the right administrator.
6) Review your estate plans with your heirs:Once you have determined your estate plan and selected an administrator, be sure to go over the details with your heirs. Doing so can help eliminate problems such as confusion and also legal disputes. Heirs frequently harbor misperceptions about how much money their parents have, Piper wrote in a separate Wall Street Journal article. He specifically noted two instances where this understanding could break down:
- The parents have less money than their inheritors think.
- The heirs believe they will end up with a larger portion of the inheritance than they actually do.