Removing assets from your estate is a great way to reduce estate taxes before you die.
So, spend some and enjoy it!
Also, you probably know whom you want to have your assets after you die. If you can afford it, why not give them some assets now and save estate taxes? It can be very satisfying to see the results of your gifts– something you can’t do if you keep everything until you die. Appreciating assets are usually best to give, because the asset and future appreciation will be out of your estate.
Assets you give away keep your cost basis (what you paid), so the recipients may have to pay capital gains tax when they sell. But the top capital gains rate is only 15% (assets held at least 12 months). That’s a lot less than estate taxes (45-46%) if you keep the assets until you die.
Some of the most commonly-used strategies to remove assets from estates are explained below. Note that these are all irrevocable, so you can’t change your mind later.
- Tax-Free Gifts
- Irrevocable Life Insurance Trust (ILIT)
- Qualified Personal Residence Trust (QPRT)
- Grantor Retained Annuity Trust (GRAT) and Grantor Retained Unitrust (GRUT)
- Family Limited Partnership (FLP) and Limited Liability Company (LLC)
- Charitable Remainder Trust (CRT)
- Charitable Lead Trust (CLT)
- Buying Life Insurance
Detailed explanations of each of these strategies for removing assets from your estate will be explained in the upcoming blog entries. For questions on reducing your estate tax, please contact our experienced Estate Planning Attorney in Woodland Hills.