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Steps You Can Take to Protect your Estate from Taxes


October 23,18 | 5:06 am

Steps You Can Take to Protect your Estate from TaxesThroughout your career, you’ve worked hard to save money and provide for your family. Setting aside earnings for life’s unexpected events, including illness, business or financial mishaps, disasters and more, has always been part of your financial plan. You recognize the importance of savings, and your persistence has allowed that nest egg to grow steadily through the years. Congratulations!

You’ve developed your retirement plan, and now it’s time to take that next step to help protect your loved ones after you pass — estate planning.

Everyone has an estate. Your estate refers to everything you own, such as your car, home, checking and savings accounts, investments, life insurance, and personal possessions. Yet what happens to these worldly possessions when you die?

For many, the idea of estate planning refers to a will, a written document designating your possessions to the people or organizations you care most about to ensure your wishes are carried out. A will addresses:

Who will receive something of yours?
What item/s do you want them to receive?
When will the people you identify receive your things?

Although a will is one way to distribute your assets according to your wishes, it does not avoid probate. Probate is the legal process through which a deceased person’s estate is distributed to heirs and designated beneficiaries, and any debt owed to creditors is paid off. In many states, if you are married and have children, your spouse and children will each receive a share. If you have minor children, the court will control their inheritance.

Not everything will go through probate. Jointly-owned property and assets that let you name a beneficiary (life insurance and IRAs, for example) are not controlled by your will and usually transfer to the new owner or beneficiary without probate.

Another estate planning option is to place your assets in a trust. Trusts are like wills, but they avoid state probate requirements, and creating a trust saves on estate taxes. With an assortment of trusts available, a financial advisor can help you determine how to use a trust to shield assets from estate taxes. One example is a revocable living trust. It avoids probate and prevents court control of assets at incapacity by bringing your assets together under a single plan. You can change a revocable living trust at any time; it is valid in every state and allows assets to be distributed to heirs in a timely manner.

A few suggestions to minimize estate taxes include reducing the value of your estate by giving annual gifts to your children, grandchildren, or others, or donating to charitable organizations to reduce the size of the estate. These donations may be tax deductible.

Life insurance and annuities can comprise a significant amount of your estate, but you may reach a point in your life where it could be wise to unlock the value of your life insurance assets and apply them to meet other needs. To learn more about how to do this, and how it will affect your estate, contact us.

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