NerdWallet found that the federal estate tax percentage in 2023 ranges from 18-40%. When you create an estate plan in Virginia, you may naturally want to explore strategies that can help you minimize or avoid estate taxes.
Estate taxes can significantly impact the value of the assets you pass on to your beneficiaries. Although it is not possible to completely eliminate estate taxes, you can employ strategies to reduce their impact.
Understanding estate taxes
Estate taxes, also known as inheritance taxes or death taxes, impose taxes on the transfer of assets from a deceased individual’s estate to their beneficiaries. Some states require an additional estate tax on top of the federal estate tax. However, there is no additional estate tax in Virginia.
Utilizing tax exemptions
One effective strategy to reduce the impact of estate taxes in your Virginia estate plan is utilizing tax exemptions. Both the state and federal governments offer exemptions that allow you to exclude a certain amount of your estate from taxation. By structuring your estate plan to maximize the use of these exemptions, you can minimize the taxable portion of your estate.
Another strategy to consider when planning your Virginia estate is establishing trusts. Trusts can provide various benefits, including potential estate tax reductions. By creating trusts, such as irrevocable life insurance trusts (ILITs) or charitable remainder trusts (CRTs), you can transfer assets out of your taxable estate while retaining control over them during your lifetime. Properly structuring trusts can help mitigate estate tax liability and help you distribute your assets according to your wishes.
Although it is not possible to completely avoid estate taxes in your Virginia estate plan, employing these strategies can help you reduce their impact.