While this means the majority of Americans owe no estate tax, they may still owe an inheritance tax. This is payable by the beneficiary who receives property from the estate, and is based on only the value of those particular assets. The beneficiary is responsible for paying this tax, although some people include provisions in their wills to have the estate take care of this burden for them. For those with estates that are still taxable at the state and/or federal level, the following options may help reduce their overall liability: Gifts given during a person’s lifetime eat away at the hefty estate exemptions. This means that the tax-free limit on your estate assets will be lower when you pass away. However, there is a caveat. As of 2022, you can give away up to $16,000 without reducing the estate exemption (up from $15,000 in 2021). As a result, giving away gifts of $16,000 or less per year is a great way to reduce the value of your estate without reducing your estate exemption.
A Family Limited Liability Company offers both estate tax reduction and asset protection. Married couples can take advantage of annual exclusion gifts and their lifetime gift tax exemptions by creating Spousal Lifetime Access Trusts, or “SLATs,” for the benefit of one another. Creating a charitable trust, such as a Charitable Remainder Trust, gives you a charitable income tax deduction when the trust is funded, and it gives your estate a charitable estate tax deduction after you die. A Qualified Personal Residence Trust lets you live in your home for a period of years, then the home will pass to your heirs at a reduced value, for estate and gift tax purposes, after the period ends.
Those who are concerned with paying an estate and/or inheritance tax may want to relocate to other states. While this may seem like an extreme measure, it could allow thousands of dollars in death taxes to stay in the family, instead of going to the government.
