Estate planning attorneys are licensed legal professionals specializing in the field of Estate planning. They have a clear and thorough understanding of federal and individual laws of states related to the estate. An Estate planning attorney can help you to plan everything related to your estate. This includes how an estate is valued, taxed, and distributed after death. An Estate planning attorney is someone who knows all federal as well as state laws. They are also aware of rules regarding estate and estate planning. They can help you to reduce or cut or avoid estate taxes with the proper methods used by estate planning attorneys.
Methods estate planning attorneys use to cut and avoid estate taxes
1. Marital transfers of assets
As long as the surviving spouse is a citizen, neither lifetime gifts nor bequests in a will are subject to estate taxes. This method doesn’t provide exemption but defers the tax on the estate until the death of both spouses.
To reduce the value of the taxable estate by further decreasing state and federal taxes. Each member of a married couple can make annual tax-free gifts to any number of people each year.
You can do this to a specific limit with an incursion of gift tax. For example, in 2022, it was 16000 USD for each spouse, so a Married couple could annually gift $32,000 a year without incurring a gift tax.
3. Gifts to minors
Using two different methods, gifts can be exempted from taxation to minors.
The Uniform Gifts to Minors Act (UGMA): This act allows gifts of cash and securities to underage children.
The Uniform Transfers to Minors Act (UTMA): This act allows a minor child to be the beneficiary of a gift of money or real property. These could include real estate, royalties, patents, personal belongings, cash, and securities.
These accounts are handled by an advisor or a Grantor who you may name.
These can be used to give gifts to minors that are children up to the ages of 18 or 21, as stated by their state laws.
4. Set up an Irrevocable Trust or Life insurance Trust
An irrevocable trust or life insurance is a financial tool with various tax benefits. A life insurance trust consists of three parts.
Grantors are the person who insures and fund the life insurance policy. In addition, the beneficiaries will receive the life insurance payout and benefits after the demise of the Grantor. Finally, the trustee will name the Grantor, who is responsible for executing, overseeing, managing, and distributing the assets in the trust.
The trustee pays monthly premiums after the insurance policy is in the trust. Later, when the Grantor passes away, the trustee will be responsible for executing the instructions written in terms of the account and distributing the assets accordingly. To get tax benefits, the Grantor cannot be the trustee of the trust. Thus, an estate planning attorney can help you choose a responsible trustee. These trusts can help you to reduce state and federal taxes owed on yearly tax returns during your lifetime and avoid estate taxes after your death while allowing you complete control over the timing and distribution of the inheritance and assets in the trust.
5. Marital trust
Two types of trust allow the spouses to use personal exemption of taxes to the fullest extent without any consequences for the surviving spouse.
Spouses can use these trusts to transfer separate assets and community property assets into beliefs that will benefit the surviving spouse after the other spouse’s death.
The main difference between these trusts is
- The AB trust allows the surviving spouse to access the assets.
- The QTIP trust does not allow the spouse to access the assets.
6. Family Limited Partnership or Foundation
Setting up a family-limited partnership helps you manage your assets while still being protected from creditors and divorced spouses. After your demise, such a trust transfers your purchases to your limited partners, usually your heirs. In addition, these limited partners get a tax break on income.
7. Estate and gift taxes to cut estate taxes
Charitable Trusts and Charitable Transfers are Lifetime charities and gifts to charities. It can reduce the overall value of your estate, thus reducing your estate taxes. It will perform so that the donor retains the right to use the gifted asset or income from it till death.
Conclusion – Methods estate planning attorneys use to cut estate taxes
An Estate planning attorney can help set up various techniques to reduce or avoid taxes on the estate. This is possible while ensuring you don’t make any mistakes during the process.