How Can You Minimize Estate Taxes Through Proper Planning?

Good planning can help you reduce or even avoid estate taxes. Here’s some advice from an estate planning lawyer in El Paso, TX on a few strategic steps you can take to handle your estate in the most tax-efficient way possible.

How Can You Minimize Estate Taxes Through Proper Planning? Advice from an Estate Planning Lawyer in El Paso, TX

Understand Federal and State Exemptions

The federal estate tax exemption is a set amount below which an estate does not owe federal estate taxes. This amount can vary depending on legislative changes. In some states, additional estate or inheritance taxes may apply, but there are no estate taxes imposed by the states of Texas or New Mexico.

Make Use of Lifetime Gift Tax Exemptions

Under current laws, you can gift up to a certain amount per year per recipient without incurring gift taxes or reducing your lifetime estate tax exemption. Making these annual gifts transfers wealth out of your estate, so regular gifting over time can significantly reduce the taxable portion of your estate.

Set Up Irrevocable Trusts for Wealth Transfer

Placing assets in an irrevocable trust transfers ownership of those assets out of your estate and locks in terms and beneficiaries. This lowers or eliminates estate taxes on these assets because they’re no longer considered part of your taxable estate. There are specific types of trusts that are specifically designed for tax-efficient wealth transfer, for example, a bypass trust or a generation-skipping trust.

Consider Charitable Contributions

When you leave assets to a qualified charitable organization, those assets are typically not subject to estate tax. Charitable trusts, such as a charitable remainder trust, make it possible for you to use the income from an asset during your lifetime and then, after your death, transfer the remainder to the charity. Charitable trusts are a meaningful way to support causes important to you and reduce estate taxes.

Use Life Insurance Strategically

You can transfer life insurance policies to an irrevocable life insurance trust (ILIT). This excludes the death benefit payout from your estate, which prevents it from increasing your taxable estate’s value. This setup means liquid assets available for estate taxes or other expenses without additional tax burdens. The funds can also be used to support beneficiaries directly.

Marital Deduction and Portability

The marital deduction and portability provisions helps to defer estate taxes until the death of the surviving spouse. This allows you to leave an unlimited amount of assets to your spouse tax-free. Additionally, portability enables a surviving spouse to use any unused portion of their deceased spouse’s estate tax exemption, effectively doubling the amount that can be passed tax-free.

Create a Family Limited Partnership (FLP)

A Family Limited Partnership (FLP) can help minimize estate taxes while keeping control of family assets within the family. Transferring assets into an FLP and distributing partnership interests to family members reduces the estate’s taxable value, but allows your family to retain control over the partnership’s assets. Discounts may apply to partnership interests for lack of marketability or control, further reducing the taxable portion.

To discuss ways to minimize estate taxes, contact the law offices of Townsend Allala, Coulter, & Kludt, PLLC, in El Paso, TX, or Truth or Consequences, NM.

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