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Keep taxes in mind when planning your estate

Keep taxes in mind when planning your estate

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Estate tax is defined as the tax on a person’s right to transfer property after death. There are several strategies those who are in the midst of the estate planning process should consider implementing with the assistance of their estate planning lawyer in Illinois to ensure that their estate taxes are as minimal as possible once they pass away.

Obtain a current asset valuation

This step is particularly important for estates that include assets that are difficult to value, such as a closely held business. Those planning for the future by establishing their estate plan should get a professional appraisal done to determine the fair market value of their assets. If this step is not taken, the IRS may be able to disagree about the estate’s value and assign a larger value to certain assets, increasing the amount of tax applied to the estate.

Make giving go into effect as soon as possible

One strategy that can be used to minimize estate taxes is to provide gifts to beneficiaries. However, the gifting process should not necessarily be put on hold until after the estate owner’s death. By starting the gifting process as soon as possible, estate owners may be able to increase the overall amount they are able to leave to their beneficiaries.

For example, a father desires to give his child $1 million, but previously used his exemption equivalent amount for gifting purposes. If the father gives his child the monetary gift while he is still alive, he may be required to pay $400,000 in gift taxes, resulting in an out-of-pocket total of $1,400,000. Comparatively, if the father waits to give his child the same amount, $1,400,000, at his death, he might owe over $500,000 in estate taxes and his child would receive less than $1 million in total.

Create an irrevocable trust

Those who are working with an estate planning lawyer in Illinois should consider setting up an irrevocable trust to help remove their policy from their gross estate, ultimately reducing the tax amount applied to their estate. If a life insurance policy remains in the name of the policy owner, the policy’s death benefit may potentially be included in the gross estate and taxed.

After the decision to plan an estate is made, the process should be started as soon as possible. Waiting too long to begin the estate planning process with an estate planning lawyer in Illinois can result in tax amounts that could have been avoided. Those who desire to preserve the value of their estate should consider speaking with an attorney who can introduce them to viable tax-reduction strategies.

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