Lawyers who help with estate planning ensure that trusts and other assets are given to the right people and that taxes are paid according to state laws. Thus, when the time to pass on comes, lawyers make arrangements that result in lower tax liability.
Estate planning attorneys can save their clients enormous sums of money in estate taxes by properly drafting wills and planning estate taxes. And in the case of finding the easiest tax-saving approach to pass on assets to children, estate planning lawyers use five standard methods. These methods reduce estate taxes when you die and, in turn, often reduce your present-day tax returns. This article will look at the five most common methods estate planning lawyers use to reduce your taxes.
The Easiest Tax-Saving Approach to Pass on Assets to Children.
Using the methods listed below, estate planning lawyers provide you with a hassle-free approach to passing on your assets to children.
- Marital Transfers by Estate Planning Lawyer
- Lifetime Gifts to Children and Grandchildren
- Gifting to Minors
- Marital Trusts (AB Trusts and QTIP Trusts)
- Irrevocable Life Insurance Trust (ILIT)
1. Marital Transfers by Estate Planning Lawyer
If the assets are left to a surviving spouse, neither gifts made during life nor bequests made in a will are taxed as part of an estate. This is the case whether or not the assets were left to a charity. This rule can only be broken when one of the spouses is a citizen of a country other than the United States. Even if you are eligible for the exemption for marital property transfers from an estate tax, you will still be required to pay estate taxes. It merely pushes back the date on which the tax bill must be paid. When the second spouse passes away, estate taxes will need to be paid on the entire taxable estate. This means the assets that were moved after the first spouse died and before the second spouse died will be taxed when the second spouse dies.
2. Lifetime Gifts to Children and Grandchildren
No matter how many people they give gifts to in a given year, a married couple doesn’t have to pay gift taxes on any of the gifts they give. This is only allowed up to a certain gift exclusion limit set by the federal government. A gift tax will have to be paid if this exceeds the limit. In 2022, this limit was raised to $16,000, an increase of 4,000 dollars. If both people in a married couple want to give gifts, they can give up to $32,000 per year, which is their combined exemption amount, without worrying about the gift tax. This limit applies even if the gifts are made in the same year.
A couple may be able to send a good amount of money to people or groups. The couple chooses who will get the money if they implement this and let it work out over several years. This reduces the amount of estate tax owed to the federal government and the state.
3. Gifting to Minors
Two gifting methods allow you to gift a minor(s) without gift tax consequences:
- The Uniform Transfers to Minors Act
- The Uniform Gifts to Minors Act
This holds true until the child reaches the majority age, typically 18 years old.
The Uniform Transfers to Minors Act (UTMA), which was made to protect their rights, lets a child who is still a minor receive a gift of money or property as well as royalties, valuable artwork, and patents.
When it comes to managing the assets that are kept in these kinds of accounts, the grantor, also known as the donor, is involved. A custodian that the grantor has appointed has the ability to do so. The Internal Revenue Service (IRS) allows gifts to be exempt from gift tax up to a specific limit known as the annual exclusion limit, which will be increased to $16,000 in 2022. If a person gets a gift worth more than that amount, they will have to pay taxes on it at the same rate as the child who got it. Also, any money made from these accounts must be reported as taxable income. Find out more information about the tax rate that applies to children.
One of the drawbacks associated with an estate planning lawyer on a student’s ability is to receive financial assistance, which is one of the potential benefits associated with an estate planning lawyer.
4. Marital Trusts (AB Trusts and QTIP Trusts)
The exemption amount for the personal estate tax for the year 2022 has been set at $12.06 million. This is the maximum value of assets that can be left to an heir without triggering an estate tax liability for the deceased individual’s estate. There are two different kinds of marital trusts. Each one lets each partner get the most out of their own exemption without hurting the other partner. This category includes both AB trusts and QTIP trusts as participants.
Even though the other spouse is no longer around to exercise control, when the second spouse dies, the grantor spouse still has the final say over what happens to these assets. This is because the grantor’s spouse is the one who made the will.
They can use personal property in the trust if they follow the rules in the document that sets up the trust.
Here’s where the difference comes in:
- An AB trust allows the surviving spouse to access the interest and, in some situations, the trust’s principal.
- A QTIP trust does not allow the spouse to access the assets.
- As such, a QTIP trust tends to be popular when the donor spouse is married for a second time. But has children from a first marriage who will inherit their parent’s assets. An AB trust may be more common when there are only children from the marriage.
5. Irrevocable Life Insurance Trust (ILIT).
When used as a tool for financial planning, a life insurance trust can provide a variety of advantageous tax outcomes. These outcomes can include the funds that have been transferred into the life. The trust uses insurance trusts to pay the premiums for one or more life insurance policies. These could be
- A term policy
- A whole life policy
- A second-to-die policy.
It is the trust, not the estate, that is given the proceeds from the life insurance policy when the donor passes away. The assets that are given away through the trust are exempt from paying estate taxes.
So, one of the many benefits of an ILIT is that it can lower the amount of state and federal taxes owed on an individual’s annual tax return while the taxpayer is still alive, and it can prevent the payment of estate taxes after the taxpayer dies. Additionally, an ILIT allows the donor to control the timing and distribution of an inheritance held within the trust.
Conclusion:
A well-prepared estate planning lawyer who understands how to handle assets properly can make the distribution of such assets easier for the client and, perhaps, become a helping hand for families worried about their children’s future. With the help of a good estate planning lawyer, you can use any of these strategies to give your children assets while paying the least tax possible.
