Many people will seek the least deduction on their annual tax return, but will not care to minimize the ultimate tax they may have to pay on their assets. This tax is the property tax. In order to minimize inheritance tax, you need to plan and it takes effort.
Most people are hesitant to think about estate tax planning because they don’t want to think about dying or they just don’t know that the estate tax will eat up so much of their estate.
When we talk about estate, this includes your home, your personal investments, all retirement plans, life insurance and annuities. If your estate is valued at more than $2 million, you will have to pay estate tax and that is why it is imperative that you spend some time on estate tax planning.
Some of the popular estate tax planning strategies are:
o Credit Shelter Trust: If you use this means of saving inheritance tax, your spouse will have nothing to pay when you die. The same tax benefit applies when the second spouse also dies leaving the property to the heirs. This means that you can place assets worth $2 million in a credit shelter trust for your spouse and heirs to benefit.
o Gifts: You can reduce your estate tax by making gifts, but there are certain annual limits. You can gift only $12,000 a year to each person without incurring gift tax. This is done during your lifetime and you can do this every year so that the value of your estate decreases when you die.
o Liquidity assurance: Smart planning reduces inheritance tax but does not necessarily eliminate it. Therefore, you must provide your heirs with a means of paying inheritance tax, which must be paid within nine months of your death. The best way to do this is to purchase life insurance where the death benefit is large enough to cover taxes. However, this is where caution comes in. If you own the insurance, it will be considered part of the estate. So instead of having the insurance in your name, the policy can be owned by an adult child or a life insurance trust that you can create.