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Despite attempts by many lawmakers to limit the scope of inheritance taxes, there is no way to totally avoid inheritance tax when you receive a large amount of funds. Inheritance tax is counted similar to income tax in the United States, meaning you will be assessed a portion of the funds based on the size of the funds you are receiving. There are strategies to minimize this.
Hold Funds in Trust
Holding family funds in trust rather than passing them down directly can minimize some of the tax liability. There are many ways to structure trusts in order to provide for cross-generational wealth management. Most banks offer trust services, and most law firms are able to provide advise on the tax-effective locations and ways to structure family assets in trusts.
Give One-Time Gift
There is a one-time gift provision in the federal tax code. This allows a wealthy person to donate up to a certain amount, set each year, without paying tax penalties. Both the person and the spouse of the person may give the one-time gift. In 2009, this limit was $1M, meaning up to $2M of a family's funds could be passed on tax-free. This can only happen if the funds are given before the death of the person; after death, the gift becomes an inheritance and is taxed as one.
Hold Funds in Trust
Holding family funds in trust rather than passing them down directly can minimize some of the tax liability. There are many ways to structure trusts in order to provide for cross-generational wealth management. Most banks offer trust services, and most law firms are able to provide advise on the tax-effective locations and ways to structure family assets in trusts.
Give One-Time Gift
There is a one-time gift provision in the federal tax code. This allows a wealthy person to donate up to a certain amount, set each year, without paying tax penalties. Both the person and the spouse of the person may give the one-time gift. In 2009, this limit was $1M, meaning up to $2M of a family's funds could be passed on tax-free. This can only happen if the funds are given before the death of the person; after death, the gift becomes an inheritance and is taxed as one.
