Taxes are often said to be one of the few unavoidable parts of life. The degree to which you end up paying taxes, however, can change substantially. Even though it is currently set at $11.7 million for singles and $23.4 million for a married couple, the estate tax exemption is set to expire in 2026. Following the government’s decision to create various pandemic recovery programs, it is likely that tax rates will increase. 

The uncertainty generated by estate tax exemptions means that anyone with over $5 million in assets is likely to be curious about various strategies that can be utilized to minimize taxes. The following reviews some estate planning strategies that you might consider if you are close to estate tax exemption limits. 

Make the Most of Annual Exclusions

One of the best ways to reduce your taxable estate is to maximize your annual exclusion limit, which is currently set at $15,000 a year for each individual who receives a gift. Remember, it is possible to make gifts to as many people as desired provided the amount is less than $15,000 without facing tax consequences. 

Set up an Irrevocable Life Insurance Trust

An irrevocable life insurance trust involves a trust where after one spouse passes away, the surviving spouse does not end up facing a substantial estate tax bill. Suppose that your family has a large estate and that each spouse has a life insurance policy. When the first spouse passes away, if the other spouse is the beneficiary then the surviving spouse will receive the benefit from the insurance policy. An irrevocable life insurance trust prevents your surviving estate from being subject to a substantial amount of taxes. 

Consider Passing Assets on to Charities

People who value giving back to the community should consider making gifts to charity while they are alive. Many people, however, do not consider donating appreciated assets by transferring them directly from an estate to a charity. Donations made in such a manner can avoid capital gains taxes because donors are not selling assets. While donating assets directly to a charity is one method, you can also utilize other strategies to pass on assets including qualified charitable distributions. 

Create a Donor-Advised Fund

Our blog recently discussed the advantages of creating a donor-advised fund. These funds create flexibility in how assets are passed on to charity. Sometimes people want the ability to decide between donating to different charities or stretching things over time instead of passing on one lump sum. 

Purchase Life Insurance

If you purchase life insurance early enough, you can obtain a benefit that can be used for all or most of the estate tax that you face when you pass away. This type of insurance will allow heirs to pay taxes without having to deplete their inheritance. You will pay much less for life insurance than you would have paid in taxes and this will give your heirs the funds necessary to pay taxes if your estate does end up subject to them. 

Contact a Compassionate Estate Planning Attorney

If you or a loved one has questions or concerns about the estate planning process, you should not hesitate to speak with a knowledgeable lawyer. Contact attorney Jim A Lyon today to schedule a free case evaluation.