How can you avoid inheritance tax in the future? If it can’t be avoided, can its cost be lessened? Well, follow the steps below to learn how you can prevent inheritance taxes from getting the most out of your inheritance.
1.) Know the value of the taxable inheritance. Your inheritance can be lessened by debts such as mortgages, cash assigned to charities and by the property left to the spouse left behind.
2.) Know if you would be obliged to pay estate tax. This would be based on the total value of the estate which you will inherit.
3.) If you are a United States citizen and you are the surviving spouse of the person who died, then you don’t have the obligation to pay inheritance tax. If you are not a citizen of the country, then you would need a special trust to avoid paying the tax.
4.) Distribute some of your inheritance to your heirs while you’re still alive. $13,000 is currently the maximum amount that a benefactor can give to his or her heirs (per person) on a yearly basis.
5.) Establish an estate plan. This plan can lessen the amount of taxes that would be paid by your heirs. Make sure that you update your plan every year to prevent conflicts among your family members after you’re gone.
6.) Make life insurance as one your options if you are planning to leave a business or a property to your heirs. An insurance policy can help them keep the inheritance for they would no longer pay for the estate taxes.
7.) If you have a large amount of money (possibly ranging from $1,000,000 to $5,000,00+), then set up a trust that can protect the inheritance that you would leave behind.
8.) Move your properties like houses or buildings to limited partnerships. This can lessen the tax that your heirs would be paying in the future for they you would provide them with shares in the partnership.
9.) Know if your inheritance is eligible for a unified credit. This credit can help you lessen or totally get rid of the taxes for good. Simply fill out an IRS Form 706 for this step and submit it.
Living trusts cannot help you escape from inheritance taxes. They can only prevent your property from getting in probate court.
Tax laws are not constant. Thus, consult a tax adviser or even IRS from time to time.
Note: You should talk to an Estate Planning attorney who can best assess your situation, and come up with the best plan to minimize or avoid estate taxes and other taxes.