Taxation and Estate Planning: Strategies to Minimize Your Tax Liability

Estate planning involves much more than simply deciding who will inherit your assets after you're gone. It also requires careful consideration of tax implications.

Several types of taxes can impact your estate plan, including:

  • Estate tax: This federal tax is imposed on the transfer of an individual's assets upon their death. The estate tax applies to the portion of an estate's value that exceeds a certain exemption amount (currently $13.61 million per individual or a combined $27.22 million for a married couple), which is subject to change based on legislation and inflation adjustments.
  • Gift tax: The gift tax is levied on transfers of property during an individual's lifetime. It applies to gifts of cash, securities, real estate or other assets made to another person if the value of the gift exceeds the 18,000 annual exclusion amount.
  • Generation-Skipping Transfer Tax (GST): This tax applies to transfers of assets to individuals who are more than one generation below the donor, such as grandchildren or great-grandchildren. The GST tax is in addition to any estate or gift tax that may apply.

Tools to reduce your tax liability

There are several estate planning tools that can reduce your estate’s tax burden. Here are some of the most common types:

  • Lifetime gifting: Making strategic gifts during your lifetime can help reduce the size of your taxable estate. By taking advantage of the annual gift tax and lifetime gift tax exemption ($13.61 million in 2024), you can transfer assets while minimizing tax consequences.
  • Irrevocable trusts: Irrevocable trusts can remove assets from your taxable estate while allowing you some control over those assets.
  • Qualified Personal Residence Trust (QPRT): A QPRT allows you to transfer ownership of your primary residence or vacation home to the trust while retaining the right to live in the property for a specified term. At the end of the term, the property passes to the trust beneficiaries.
  • Charitable giving: Donating to charity can provide valuable tax benefits while supporting causes you care about. Charitable giving strategies such as charitable remainder trusts, charitable lead trusts, and donor-advised funds can help maximize tax deductions and minimize estate tax liability.
  • Family Limited Partnerships (FLPs): FLPs allow you to manage your family assets while taking advantage of valuation discounts for gift and estate tax purposes. This tool allows you to transfer assets to an FLP and give limited partnership interests to family members.

With careful planning and the right strategies, you can minimize tax liability and preserve more of your wealth for future generations. Reach out to James Bart Leonardi, LLC to learn more about your options.

Contact Our Attorney