Tips for reducing estate tax

On Behalf of | Sep 24, 2018 | estate tax

Some North Carolina residents may need to employ some strategies to reduce what their estate will owe in taxes. The current federal exemption is nearly $11.2 million, but for estates worth more than that, there are additional options.

People can give away $15,000 per year per recipient, and married couples can give away $30,000. Another option is a charitable lead trust. With a CLT, a charity will receive annuity payments over a certain number of years. When this period of time ends or the person dies, the remaining assets will go to a person’s beneficiaries. A CLT can be particularly beneficial option if interest rates are low, and it also allows an income tax deduction for funding the trust. Another option is an irrevocable trust. This removes the assets from a person’s estate although it is still possible to direct the management and distribution of those assets.

Even with careful planning, not everyone will be able to fully eliminate estate tax. This is where life insurance comes in. In order to pay the estate tax, family members will need an asset that can be quickly liquidated, and a life insurance policy provides this liquidity. However, the estate owner cannot own the life insurance policy or it will be added to the estate. An irrevocable life insurance trust may be one option.

An attorney may be able to advise a person regarding these and other options as well as how to set up the necessary documents. People should also take into account that there is a sunset provision for the estate tax exemption and that it could change in the future. New laws as well as a change in assets or a person’s family may all result in the need for revisions to an estate plan, and documents should be reviewed regularly to ensure they remain current.