How to Mitigate Inheritance Tax
Though your assets are all taxed during your lifetime, the government hits them with another hefty tax when you die and your property is passed on to your heirs. The inheritance tax will cut the value of what you leave to your heirs drastically unless you find a way to mitigate it. There are several avenues you can take to reduce or eliminate the inheritance tax that will be taken from your estate, leaving more money for your heirs and loved ones.
Other People Are Reading
Instructions
-
-
1
Create an irrevocable trust with someone you have faith in as the trustee. This puts your assets into someone else's name and helps you mitigate the cost of the inheritance tax. You'll have to contact a lawyer to set up an irrevocable trust. Keep in mind that you lose the right to any of your assets once they're owned by the trust.
-
2
Own property jointly with your spouse or children. If you each have an equal stake in the property, it reverts to them upon your death and is not considered a part of your estate for tax purposes.
-
-
3
Instruct your heirs to take the Federal Estate Tax Exclusion. This eliminates taxation on up to $1 million of your assets upon your death. Because the inheritance tax can be as high as 55 percent, excluding the $1 million can save more than $500,000.
-
4
Give money away to your heirs each year. If you have a sizable amount of capital available, you can give a person $13,000 without incurring any tax penalties. If you give away $13,000 per year for 10 years, that's $130,000 of your assets that won't be taxed.
-
5
Have your heirs set up a life insurance policy to cover things like your estate or businesses you plan to leave to people. This can help them avoid having to liquidate their assets to pay the taxes you weren't able to avoid and can cut down on the amount of tax overall by offering a tax-free lump sum of money to meet payments immediately, avoiding interest.
-
1
References
- Photo Credit Small box with valuables image by JackF from Fotolia.com
