Published March 6, 2015 by Jason Smolen
When estate planning, consider whether taxes will turn an inheritance into a burden for your beneficiaries. In a just-published article on MainStreet.com, SmolenPlevy Co-founding Principal Jason Smolen discusses various tools used to transfer wealth while limiting the impact of estate taxes.
The federal estate tax exempts $5.43 million for individuals and $10.86 million for couples. However, 16 states and the District of Columbia impose state estate taxes of up to 20% on estates valued at more than a specified amount. For example, in Maryland, heirs may face an additional tax of 10% to 26% upon receiving their inheritance.
While Roth IRAs (which are exempt from income taxes) and trusts are ways to safeguard inheritance from taxes, Smolen suggests three other tools to consider:
- Gifting: Gifts to heirs before death reduce the size of an estate and can help it avoid additional estate or inheritance taxes. A person can gift up to $14,000 to an individual (or $28,000 with a spouse) each year without incurring a gift tax.
- Real Estate Transfers: Because real estate often represents a significant portion of the estate, a limited partnership to transfer property may be effective. Beneficiaries can be given shares in the limited partnership directly or in a trust.
- Life Insurance in a trust: If a policy is held by a trust that is set up outside of an estate, insurance proceeds are generally tax free.
