There are many techniques available to reduce or totally avoid estate taxes, however many techniques involve giving away your assets before you die. Careful consideration should be given to the amount of assets you will need to retain, to live a comfortable life. Very few people want to be put in a position where they gave too much away and have to ask for financial help. What may not seem to be an issue now with gifting to your family can easily change with the influence of outside people such as son or daughter-in-laws. If, after careful consideration, you would like to still reduce your estate, consider the following:
CURRENT FEDERAL ESTATE TAX LAW - In 2016, every person can give away or die with up to $5,450,000 without incurring any gift or estate taxes. If you are a married couple, the amount can be doubled ($10,900,000) so most estates will not encounter an estate tax. This $5,450,000 is indexed for inflation, so as long as the law exists, the amount will continue to rise. For the larger estates where an estate tax may otherwise be imposed, there are techniques available to give away significantly more that the existing $5,450,000 if your circumstances warrant.
ANNUAL GIFT TAX EXCLUSION - In 2016, a donor can also give up to $14,000 ($28,000 for a married couple) to each donee without reducing the $5,450,000 exemption amount. This $14,000 amount is also indexed for inflation. Gifts can be given directly to beneficiary and can also be gifted to deposit this gift into an Irrevocable Trust (each year) to take advantage of the annual gift tax exclusion.
DISCOUNTING INTEREST - Creating voting and non-voting interests in an entity can discount its value. Generally, a non-voting interest is less valuable for the purposes of valuing the entity. Discounting is a commonly used estate planning strategy to reduce/eliminate estate taxes.
CHARITABLE TRUST - A trust could be set up to benefit a charity of your choice. Setting up a charitable trust offers many tax breaks.
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