You may be wondering how you can avoid estate tax. It is possible to avoid estate tax on an account where the value of your estates is way below the tax exemption.
Presently any estate that you transfer to your heirs or beneficiaries above the estate tax exemption will be taxed 40% for any value over £325,000.
You can save a lot of money if you utilize estate planning tactics by taking the help of estate planning advisors. Here is how you can avoid or reduce estate taxes.
Tip #1 – Gift your assets when still alive
If you want to minimize your estate tax liability to the federal government, you should think of gifting your assets to friends, family, or relatives. Transfer some of your assets to other people when alive. You can give your assets to family members or charities.
You are permitted to give up to £3,000 per donor and recipient tax-free every year. It would help if you don’t go beyond this amount because it could lower your tax exemption.
If you can increase your charitable offering and gifting, you benefit from the deductions today and reduce your future taxable estate.
Tip #2 – Set an irrevocable trust
You can also set up a trust if you want to cut down your estate taxes.
When you are transferring your assets into an irrevocable trust, they are owned by the trust and not you. It also means the funds cannot be subjected to estate tax.
If you want to prevent your life insurance proceeds from being taxed, you can create an irrevocable life insurance trust. Transfer the ownership of this trust to a third party.
Setting up assets still gives you authority over your assets. You won’t lose the assets, and you can also set up some provisions on how your estates are being distributed. If you want to consider this method of avoiding estate tax, you should act fast. When you die within three years of making the transfer, your estate and life insurance proceeds are still subject to estate tax.
Tip #3 – Establish a family limited partnership
It is a brilliant idea to set up a family-limited partnership if you have family-owned assets and businesses that you want your children to inherit when you die. Doing this is simpler; establish a general partnership and ensure the heirs to the business are your limited partners.
Every limited partner in your company or business will own some share of your assets and have some stake. You’ll still be able to call the shots, but the stake in your company will be smaller.
Tip #4 – Establish a Donor Advised Fund
A Donor Advised Fund is another method you can use to avoid or reduce estate tax. Every asset you put in the trust is not always counted as your total estate value. This allows your accounts to grow tax-free as you set them aside for charity.
You remain in charge of the money in the charity accounts until you decide who you want to donate the funds. Your heirs can manage and distribute the money if you pass away and there are some assets in your account.
Tip #5 – Spend down some of your assets
If you have a lot of assets that put you above or close to the federal threshold for the estate tax, you can spend some of it down. When spending your assets, you should be careful not to go beyond having enough to maintain your living standard.
You can do more if you want to lower your estate tax or avoid it together. You can marry, set up a charitable fund, establish a life insurance trust, and gift some of your assets to family and friends. You want to choose one of these estate planning tips to help you lower your estate tax when still alive.