The estate tax is called the death tax for a reason and most people would rather avoid the estate tax if possible. For example, Michael Jacksons death triggered an estate tax in the area of hundreds of millions of dollars. Instead of this money staying within the Jackson family, half of it went to the government.
For those who dont know, the federal estate tax kicks in at death after a value on an estate of over $5.45 million. Every dollar over this amount is taxed at 40 percent. There could be additional taxes added on if the state has an estate tax. Because most people would rather give their money to charity or have it stay within the family, it is important to plan for an estate in ways that better ensure that the estate tax is minimized.
How to Avoid the Estate Tax
While the estate tax cannot be completely avoided, it can be minimized. There are a few ways that people can minimize the amount of money that winds up in the hands of the government. For people interested in keeping their hard-earned money among family and friends, there is some important advice they should keep in mind.
Get Married: One of the first ways that people can help to minimize the damage of the estate tax is to get married. While the federal estate tax exemption sits at $5.45 million, this number doubles when people get married. This makes sense because with two people the value should be doubled. Getting married can give people a boost on their estate tax exemption.
Give the Money Away: More importantly, give the money away before death. If people are going to get the money after death anyways, why not start giving it away before death? When the estate tax rolls around, there is less money available for the federal government to tax. Of course, the government is aware of this and has a tax called the gift tax. This tax is only applied after a certain dollar amount as well and only to dollar amounts given to the same person. Spread the money around over different people over a period of years to cut down the estate before death.
Take Advantage of Trusts: There is a wide variety of trusts that people can place their money into. This can help remove certain assets, such as a house or a life insurance policy, from the calculations involved in the estate tax. Because trusts remove assets from the estate, this can save the beneficiaries a significant amount of money when the estate tax kicks in.
For more information on estate planning and setting up trusts, everyone should contact an experienced estate planning lawyer to help keep the money in the right hands. Nobody wants to see their hard-earned money wind up in the hands of the government.