How to minimize inheritance tax during the probate process

How to minimize inheritance tax during the probate process

Not all estates are taxable. But during estate planning, you should always consider if your estate will be subject to any form of tax when you pass away. Such taxes can eat a considerable part of your estate, leaving your loved ones with less than what you had wanted.

Even when your estate will not be subject to federal or state estate tax, your beneficiaries may have to pay inheritance tax during the probate process before they can inherit your estate. But what exactly is inheritance tax?

Inheritance tax defined

Inheritance tax in the United States is an amount of money charged for the transfer of a deceased person’s assets. Only those assets transferred via a will or state’s intestacy laws may incur inheritance tax. And not all states impose inheritance tax on asset transfer.

How to minimize inheritance tax

There are many ways to minimize inheritance tax during probate or even completely avoid it. To do this, you should first be aware that only those assets that are going through your will will be charged an inheritance tax. In the absence of a will, then all assets you own in your name alone will be transferred according to your state’s intestacy laws and inheritance tax will still be paid. All of these happen during probate.

To minimize or avoid inheritance tax, it therefore means you must reduce the value of assets passing through probate. By so doing, the total value of inheritance tax to ve paid will be reduced.

1. Annual gifting

Gifting is the act of voluntarily transferring ownership of your asset to another individual without full valuable consideration.

As you get older, you may have valuable funds that you hope to transfer when you pass away. But you can start doing so now that you’re alive. You are allowed to gift up to $15,000 annually without any tax return. It doesn’t always have to be cash. It can be stocks, bonds, cars, or any asset so long there is monetary value to it. When you do this yearly, the value of assets to be transferred will be less, hence minimizing inheritance tax.

2. Holding assets in a living trust

Assets passed via a trust do not go through probate, and hence escape all tax including inheritance tax.

A trust is a legal entity that holds assets, managed by a trustee on behalf of the beneficiary. When you create a living trust, the trust becomes the owner of the assets you fund into them. But you can name yourself as the trustee so that you can use the assets to your benefit until you pass away, at what time your appointed successor trustee passes the assets to your named beneficiary tax-free.

3. Holding assets in an irrevocable trust

In an irrevocable trust, you have no access to the assets you funded into it. The assets you place in this kind of trust should be those you don’t expect to use until death, because the trust becomes the permanent owner until you pass away, after which the assets go to your beneficiaries completely tax-free.

Since trusts are highly complex legal documents, you should get an estate planning attorney to create your trust for you.

4. Spending

There is no reason waiting for death to come when you can spend and enjoy quality life with your loved ones. You can spend on them, fund their accounts, and get their appreciation while you’re yet alive.

States that charge inheritance tax in the United States

As at 2021, only six states in the US charge inheritance tax.

These states include:

  • Iowa (up to 15%)
  • Kentucky (up to 16%)
  • Maryland (up to 10% of the asset transferred)
  • Nebraska (up to 18%)
  • New Jersey (up to 16%)
  • Pennsylvania (up to 15%)

If you own estate in any of these states, then you should consider how to minimize inheritance tax when writing your will.

Differentiating inheritance tax from estate tax

Inheritance tax is very different from estate tax. While there is a threshold amount at which an estate becomes subject to estate tax, there is no threshold for inheritance tax.

If an estate values above a certain amount, the estate tax will be a percentage of the estate’s value. Your estate must be subject to federal estate tax if it surpasses $11.7 million. As for state estate tax, the threshold varies from state to state, and not all states impose estate tax.

On the other hand inheritance tax is imposed on the value of estate each beneficiary receives.

For legal assistance, talk to an estate planning lawyer near you.


More Posts

What does a probate lawyer do?

What does a probate lawyer do?

Probate Lawyers and What They Do Probate Lawyers integrate probating wills, guardianship, freedom, and conservatorship. Probating a will integrates coursing property after a decedent, or

The Cost to Hire a Probate Lawyer

The Cost to Hire a Probate Lawyer

Probate Attorney and What is it? Probate is the court system where a departed individual’s last will and confirmation is demonstrated and given impact. This

Importance of hiring a probate lawyer?

Importance of hiring a probate lawyer?

Probate Attorney Will Prevent Personal Liability The significant feeling of misfortune can overpower you. It’s vital to require investment to mend. You ought to move

How much does a probate lawyer cost?

A probate lawyer cost

Probate Lawyer Costs The death of somebody seems to convey with needs have nothing to do with what’s required. Like orchestrating a dedicated administration and

How can you hire a probate lawyer?

How can you hire a probate lawyer?

Probate Attorney Near Me Probate attorneys oversee home charges, access every one of the bequest’s resources, and record probate reports accurately and other conflicts. A

Morgan Hopper’s Estate Plan

Morgan Hopper’s Estate Plan

Hopper’s Death Texas state law expresses that local area property or resources gathered throughout the span of marriage, is to be split between Hopper’s life

How to Disclaim an Inheritance

How to Disclaim an Inheritance

Inheritance Attorneys Here For Hire To begin with, it’s critical to get what renouncing a legacy implies. More or less, it implies you’re declining any

How much to Probate a Will

How much to Probate a Will

How Much Does It Cost To Probate A Will In New York? The expense to probate a Last Will and Testament in New York relies

Estate Planning Consultation

Planning consultation with estate planning attorney

Will Package

New York Will Package and Health Care Proxy and Power of Attorney for Seniors

Estate Probate

For individual who passed from Covid

Power of Attorney consultation

Will Initial Will review by lawyer in person or by video consultation