Accumulating wealth is a fantastic thing, but you have to be vigilant about preserving the wealth that you have been able to earn so that your loved ones can benefit from your good decision-making. There is a federal estate tax that can significantly erode the resources that you intend to pass along to your family members after you pass away.
There is one bit of good news to report. In the United States, there are no taxes on asset transfers between spouses. As long as your spouse is an American citizen, you can leave your spouse any amount of money and/or property free of taxation.
We have a federal estate tax exclusion that can be used to transfer assets to others in a tax-free manner. The amount of this exclusion is $5.43 million. Asset transfers that exceed this amount are potentially subject to the estate tax and its 40 percent maximum rate.
When you are evaluating your estate tax exposure, you have to consider any land that you own, and many people in our area do own valuable real estate. Your life insurance policies would also be part of your estate for tax purposes.
Estate Tax Efficiency Strategies
If you are faced with federal estate tax exposure, there are estate tax efficiency strategies that you could implement. Irrevocable trusts of various kinds are often used, and one of them is the generation-skipping trust.
When you create a generation-skipping trust, you would name your grandchildren as the beneficiaries instead of your children. This can seem like a disinheritance, but in reality, your children could still benefit from assets that have been conveyed into the trust throughout their lives. The estate tax would not be imposed during the life of your children.
After the death of your children, your grandchildren would assume ownership of assets in the trust. These transfers could potentially be subject to taxation, but just one round of taxation would be imposed over two generations.
This is one type of trust that can provide tax efficiency, but there are others, including grantor retained annuity trusts, qualified personal residence trusts, and charitable lead trusts. The ideal choice or choices will depend upon your unique personal circumstances.
While trusts can certainly be part of the plan, there are other things that can be done if you are interested in the implementation of an estate tax efficiency strategy.
Take Direct Action
Taxation can significantly impact the future of your family. However, if you take the right steps, you can mitigate your exposure to the death tax and preserve your family’s wealth.
Our firm offers free consultations, and we would be glad to help if you are ready to take action. To set up an appointment, send us a message through this page: Dallas TX Estate Planning Attorneys.