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When thinking about the legacy you want to leave behind, taxes are probably the last thing on your mind. However, they can play a significant role in how much of your estate actually reaches your loved ones. Estate taxes, in particular, can reduce the amount your family inherits, but the good news is that not everyone will face them. With the right planning, you can take steps to ensure that more of your assets go to the people you care about rather than toward taxes.
Who Pays the Estate Tax?
The estate tax is a federal tax that applies to the transfer of assets after someone passes away. Not everyone has to pay this tax, though. As of 2024, estates valued below $13.61 million are exempt from federal estate taxes. This means that if the total value of your estate is less than that amount, no estate tax will be owed. However, if your estate exceeds this threshold, the portion above the exemption is subject to the federal estate tax.
It’s important to note that the estate itself is responsible for paying this tax before any assets are distributed to heirs or beneficiaries. The executor or administrator of the estate typically handles this, using estate funds to cover the taxes owed. In Texas, there’s no additional state-level estate tax, so residents only need to worry about federal obligations. By understanding how estate taxes work, you can plan effectively to ensure your loved ones receive as much of your estate as possible.
Ways to Minimize Estate Tax
Minimizing estate tax is possible with proper planning, and there are several strategies that can help reduce the taxable value of your estate. Here are some effective approaches:
- Gifting during your lifetime: One way to reduce the size of your taxable estate is by gifting assets to loved ones while you’re still alive. The IRS allows an annual gift tax exclusion, which is currently $18,000 per person per year. You can gift up to this amount to as many people as you like without it counting toward your lifetime estate tax exemption.
- Establishing a trust: Certain types of trusts can help protect assets from being included in the taxable estate. For example, an irrevocable life insurance trust (ILIT) can remove the proceeds of a life insurance policy from the estate, lowering the taxable value.
- Charitable donations: Giving to charitable organizations can not only support causes you care about but also reduce the size of your estate. Charitable donations made during your lifetime or through your will can lower the taxable portion of your estate.
- Family Limited Partnerships (FLPs): For those with significant business or real estate assets, forming an FLP can be an effective way to transfer wealth to family members while maintaining control and minimizing estate tax exposure.
Each of these strategies can help you preserve more of your assets for your beneficiaries rather than losing a portion to estate taxes.
The Importance of Professional Guidance in Estate Tax Planning
Estate tax planning can be complicated, and the laws surrounding it often change. That’s why working with a knowledgeable estate planning attorney is so important. We can help you understand which strategies make the most sense for your specific situation and guide you through implementing them properly. Every family has unique circumstances, and a one-size-fits-all approach doesn’t work when it comes to estate taxes. By planning ahead and seeking professional advice, you can minimize the tax burden on your estate and ensure your assets are passed on according to your wishes.
Contact an Experienced Dallas & Fort Worth Estate Tax Planning Attorney
Minimizing estate taxes is an important part of protecting your family’s inheritance. With the right planning, you can ensure that more of your assets go to your loved ones rather than toward taxes. At the Law Office of Carey Thompson, P.C., we work with you to develop personalized strategies that align with your financial goals and provide peace of mind for the future. Contact us today to schedule a consultation, and let’s discuss how we can help you create an effective estate plan that preserves your legacy for generations to come.