By: Barry E. Haimo, Esq.
May 18, 2015
Are There Techniques Available to Avoid or Reduce Estate Taxes?
HAIMO: There are many techniques that you can utilize to avoid or reduce estate tax liability. The threshold for estate tax liability changes periodically, so it’s important to consult with an attorney to make sure that you are taking advantage of the laws as they exist today. There are a variety of techniques that you can use. Some are more risky than others, but there are some very safe strategies that you can utilize to in fact save a tremendous amount of money in estate taxes, which goes to your family instead of the government.
Estate taxes are taxes on the cash, real estate, and other assets that you leave behind to your heirs.
As of 2015, Florida does not collect an estate tax at the state level. However, your estate may be required to pay federal estate taxes if its value exceeds the current exemption amount (referred to as the Unified Credit). The unified credit is now over five million in 2015). Your estate’s net value is the sum of your assets—including your home, bank accounts, investments, property, retirement plans, and business interests—minus your debts.
Estate taxes can be quite expensive and take a large chunk out of your estate. However, with the help of a knowledgeable estate planning attorney, there are many techniques available that you can use to reduce and even avoid estate taxes entirely. Reducing the amount of taxes you have to pay on your estate enables you to leave more money and assets to your family, loved ones, and organizations you care about.
Below, we’ve listed some of the most common techniques to avoid or reduce federal estate taxes in Florida.
Gift giving. You may be able to minimize the taxes owed on your estate by reducing the size of your taxable estate by giving away gifts. Under federal law, a gift is considered any transfer to a person or entity where full consideration in money or money’s value is not received in return. As of 2015, you are allowed to give away up to $14,000 per year per person to as many recipients as you want without incurring the federal gift tax or affecting your lifetime gift tax exemption. This is referred to as the Annual Exclusion. If you are married, you and your spouse together may give up to $28,000 to each recipient or double your annual exclusion.
Alternate valuation. If you are a Florida resident, you may be able to take advantage of a strategy known as “alternation valuation.” With this strategy, your executor can decide to value your estate six months after your passing rather than the date of your debt. If your estate depreciates during these six months, this will minimize the amount of taxes it owes in taxes. Alternative valuation may be a good strategy to take if your estate includes substantial stock holdings that are likely to decrease in value in the six months following your death.
Trusts. Certain types of trusts—such as irrevocable trusts and qualified personal residence trusts—allow you to remove the value of certain assets from your estate by transferring ownership to the trust.
Discounts. You can also get discounts on business entities that are structured properly to reflect the value reduction for being a minority owner and for having an inability to sell or market the shares (lack of marketability).
Asset Freezes. You can also establish and fund irrevocable trusts that, in turn, legitimately purchase and acquire your assets from your estate. As a result of this transaction, your estate retains the fixed value of the promissory note rather than the potentially fluctuating and appreciating value of the asset.
Estate planning laws are complex and constantly changing, so it’s advisable to consult with a lawyer to learn about the different types of trusts and the most effective strategies to reduce estate taxes available today.
Barry E. Haimo, Esq.
Strategic Planning With Purpose
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