Bay Area Estate And Tax Planning Law Firm

Do estate taxes apply to me and can I avoid them? (2 of 2)

On Behalf of | Nov 15, 2015 | Estate Taxes |

Welcome back. We are currently discussing methods of reducing or avoiding the federal estate tax, which applies to property that is passed to heirs upon death. The most important thing to point out is that estate taxes do not apply to everyone. In fact, 99.8 percent of estates are subject to the tax because of the high exemption that exists, according to the Center on Budget and Policy Priorities.

In 2015, the estate tax exemption is $5.43 million per person (or $10.86 million per married couple).

Of course, estate planning to reduce or avoid the estate tax is extremely important for those whom it applies to because it is a very expensive tax. Here are the remaining three most common approaches that can be taken to reduce or eliminate estate taxes, continued from our first post:

Creating a charitable trust

This kind of trust, which can be created by an experienced estate planning lawyer, involves making a large donation to a charity of your choice, so long as the charity is tax-exempt. The amount will not be considered as part of your estate upon your death.

Creating a life insurance trust

This kind of trust allows you to remove the value of life insurance proceeds from the sum of your estate. However, this depends entirely on who owns the life insurance policy at your death. Someone else has to own the policy in order for the amount to not be considered as part of your taxable estate.

Creating an AB trust or a “QTIP” trust

The AB trust involves spouses leaving their property to their children, but allowing for the surviving spouse to have access to the funds throughout his/her lifetime. The “QTIP” trust involves postponing estate taxes until after the second spouse has died.

However, with the personal exemption and spousal “portability” that exist at this time, most couples do not need either one of these trusts.

A lawyer can provide you with the answers you need

At this point, you may be unsure of whether your estate will be taxable upon your death. If this is the case, an experienced estate planning lawyer can go over all of your assets and determine if the federal estate tax will apply on your death. If it does, your lawyer can also go through ways of reducing or possibly avoiding the estate tax, perhaps using the strategies listed in these posts.