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Minimizing taxes when creating an estate plan

On Behalf of | Jan 15, 2024 | Estate Planning

SmartAsset noted that Indiana does not have an estate tax, which makes it one of the 38 states that do not. However, estate tax is not the only taxation concern when creating an estate plan.

The federal government imposes taxes on estates exceeding a certain threshold, which changes annually. As of 2024, that limit is $13.61 million or more for an individual. Other taxes may also come into play. Individuals must assess the total value of the estate and implement strategic measures to minimize tax liabilities.

Gift tax exclusion

By gifting a certain amount to heirs each year, individuals can reduce the overall value of the estate subject to taxation. In 2023, the annual gift tax exclusion was $17,000 per recipient. This allows individuals to distribute assets and wealth to their heirs without incurring gift taxes, ultimately contributing to a more tax-efficient estate plan.

Trust creation

Establishing trusts can be a valuable tool in mitigating tax concerns. Irrevocable trusts, for example, remove assets from the taxable estate and reduce the overall tax burden.

Capital gains tax consideration

When heirs inherit property, the value of the property adjusts to its current market value. This could minimize capital gains taxes upon sale. This step-up in basis can be advantageous for heirs. It resets the baseline for calculating capital gains tax. This provides a tax-efficient approach to passing on assets.

Retirement minimization

When it comes to retirement accounts, it helps to maximize the use of tax-deferred accounts. The timing of distributions can also help manage the tax impact on both the estate and heirs.

Creating a comprehensive estate plan involves meticulous attention to tax concerns. Leveraging strategies can contribute to a well-rounded and tax-efficient estate plan. Taking the time to navigate these complexities ensures the preservation of wealth for future generations.