Use these estate planning tips to reduce estate and income taxes

On Behalf of | Oct 27, 2020 | Firm News

As you develop your estate plan, you may consider strategies to minimize estate and income taxes.

US News and World Report suggests estate planning tips that may help you and your heirs realize tax savings.

Irrevocable trusts may be useful tax planning tools

You may minimize estate taxes when you set assets aside in an irrevocable trust. The trust owns the assets, so estate taxes are not assessed at death. The trustee controls the assets, but you may impose conditions on the use of trust funds. A trust may distribute funds while you are living.

Take advantage of IRS gift rules

Current IRS regulations allow you to gift up to $15,000 a year to each person in your life. These gifts are not taxable in the hands of the recipients. Each gift you make reduces the value of your estate and saves estate taxes.

You should exercise caution if you plan to make gifts of appreciating assets such as real estate or stocks. The basis of those assets steps up after death, so your heirs may realize tax savings if you defer the transfer of these assets.

Charitable donations provide another means for reducing the value of your estate. If you make regular donations, you may benefit from a donor-advised fund. You would qualify for an immediate tax deduction when you deposit money into the fund, and you can make ongoing grants to charitable organizations.

The distribution of traditional retirement accounts may trigger a tax liability

Beneficiaries must liquidate a retirement account within 10 years after the death of the accountholder. If you have a traditional IRA account, your children may pay income tax on distributions.

If you gradually convert your IRA to a Roth IRA, your heirs may enjoy tax-free distributions. However, this approach requires careful planning, as you will pay taxes on any amount you convert.