Inheritance Tax Planning: Relieve Your Beneficiaries' Financial Burden

If you have a substantial estate, or an estate you want to preserve, it's wise to do some inheritance tax planning in order to relieve your beneficiaries of financial burden. But what you may not realize is that nearly everyone should consider taking some action to preserve as much of their estate as possible.

There are various inheritance tax planning measures available through specialized estate planning and administration departments of American law firms. These professionals can help guide you through the process of choosing the right tax planning for your particular circumstance.

Wills

  • Allocation of assets - Financial advisors say that every adult should have at least a basic will for the allocation of assets - regardless of their financial or marital status. From a simple will to one that's more complex, a knowledgeable professional can take the worry out of doing what's best to ensure your assets go to whom you wish, to avoid disputes among heirs, and to take some emotional stress out of the equation.
  • Estate tax planning - State and federal death taxes may be due, depending on the size of the estate, when your assets transfer from you to your beneficiaries. You can this reduce tax liability, or potentially eliminate it, with advance tax planning.
  • Charitable bequests - Often a part of the estate tax planning, charitable testamentary gifts similarly help reduce the tax burden and fulfill your wishes.
  • Children's trusts and guardianships - If you have minor children, you should name a custodial guardian, as well as consider allocation of funds set aside in trusts managed by the guardian for the benefit of the children.
  • Pet provisions - We love our pets, and many people make provisions in their wills to accommodate the care for their surviving pets.
Trusts

Another aspect of inheritance tax planning involves trusts. You should seek the guidance of a professional to help you choose if you a trust is appropriate and the type best suited for you. There are two types of trusts: living trusts and irrevocable or testamentary trusts.
  • Living trusts - In a living trust, also called "inter vivos" trust, provisions are made for the management and distribution of your assets while you're alive and after your death. There is a trustee named, which is usually the creator of the trust, to preserve and protect the trust's assets. A successor trustee is also appointed, serving to take over the trust upon your death. The successor trustee cannot change the terms of the trust. Living trusts can be revised or revoked during your lifetime. There are inheritance tax planning benefits to living trusts, including family privacy, the ability to avoid probate court, as well as the ability to manage taxes due following your death.
  • Irrevocable or testamentary trusts - In this type of trust, you give up forever your ownership rights to the property placed in the trust. Essentially, you are gifting these assets permanently to the trust, which is controlled and managed by the terms of the trust and the named trustee. There are several types of irrevocable trust, including the irrevocable life insurance trust (ILIT) and the qualified personal residence trust (QPRT). These trusts help maximize the value of your passed-along assets.
Your selected tax planning professional can also offer assistance on choosing beneficiaries, making provisions for blended families, single-parent families, special needs children, non-related beneficiaries, business interests, planning for college, special protection for loved ones and many other considerations.

Once your estate plan has been executed, it's important to update it periodically, especially during significant life-changing events. These include marriage, divorce, retirement, death of spouse or children, birth, adoption of children, acquisition of property, serious illness, death of beneficiaries, charitable interests, major changes in your estate, changes in the law, concerns over an heir's responsibility and others.

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