What a nice nest egg Bob and Ann have accumulated over
their life thus far, I can only dream of being in a similar financial
setting at that age. To boot they are willing to share their
wealth with their children and grandchildren.
Estate tax, also known as death tax, can be scary for many.
Scary as it sounds, a vast majority of people will never apply it.
Why, because the federal estate tax has an extremely high
exemption amount, which is 12.92 million for 2023 exemption
amounts. This doesn’t mean there cannot be taxes levied
because there are some “taxes levied by some states to
contend with in certain parts of the country.” (Dixon, 2023)
A few alternatives to reduce/avoid taxable estate fees:
1. Gifts to Family
2. Set up an irrevocable life insurance trust
3. Make charitable donations
4. Establish a family limited partnership
5. Fund a qualified personal residence trust
Parents and grandparents who want to gift assets or wealth
from one generation to another can establish “trust funds to
avoid tax implications on gifts that exceed the annual gift
exclusion (Kagan, 2022)”. “A gift in trust is a special legal and
fiduciary arrangement that allows for an indirect bequest of
assets to a beneficiary (Kagan, 2022)”
On the other hand, if Bob and Ann leave their large amounts of
wealth and assets until they are both deceased the
descendants should consider selling any assets and then
gifting the sales proceeds. Another option would be to transfer
the asset/property to a trust with rights to receive annuity
payments for a period of time. When the payment period ends
the remaining trust asset/property will pass to the beneficiaries
– family members. (AICPA 2021)
References:
AICPA (March 2021) Gift Tax Strategies Retrieved from:
https://www.360financialliteracy.org
Dixon, Amanda (February 2023) 5 ways the rich can avoid the
Estate Tax Retrieved from: https://smartasset.com/
IRS (February 2023) Estate and Gift Taxes Retrieved from:
www.irs.gov
Kagan, Julia (December 2022) What is a Gift in Trust, How
does it work, Pros & Cons Retrieved from:
https://www.investopedia.com/
