The federal estate tax exemption has jumped over the past few years. Currently, estates valued at $11,580,000 or less will avoid the estate tax. This amount increases to $23,160,000 for married couples. Estates worth more than these amounts – factoring in marital status – will lose around one-sixth of their value to taxes. Yet, if your estate’s value exceeds the federal exemption, you have ways to protect your assets.
If you are married, you and your spouse can set up a bypass trust. This arrangement consists of both a revocable trust – where you will keep your assets while you are living – and an irrevocable trust – where your assets will transfer once you die. Your spouse’s share of assets will remain in the revocable trust if they survive you. These will transfer, too, once they pass. While they are alive, your spouse can manage and use the assets held in the irrevocable trust, even though they will not belong to them. So long as the value of the property in the irrevocable trust falls under the federal exemption, it will avoid the estate tax.
You also have the option of creating a charitable trust, of which two different types exist. A charitable lead trust will pass some of your assets to a tax-exempt charity over a certain period. After this period, the rest of your assets will pass to your beneficiaries. A charitable remainder trust, though, passes appreciated assets to your trustees first. They will sell these at market value and reinvest the proceeds into the trust. You will receive these while you are living, and any remaining proceeds will go to charity once you die. Both types of charitable trust will give your estate tax breaks.
While you are living, you can pass part of your estate on to beneficiaries through gifts. No limits exist to the number of people you can make gifts to in a year. Keep in mind, though, that gifts to an individual that exceed $15,000 will be taxed. This amount increases to $30,000 if you are married.
If your estate will face substantial taxation, it is crucial that you take the steps to protect its value from diminishing. An attorney with estate planning experience can help you weigh your options for doing so.