Estate taxes, which some people call the death tax, can have a significant impact on the overall value of a non-exempt estate. If an estate is large enough to owe federal estate taxes, that financial obligation can significantly reduce what beneficiaries inherit.
Estate tax rates can be as high as 40% in some cases. Prior planning is typically the only way to avoid estate taxes or reduce the tax rate imposed. One of the most common and effective strategies for addressing estate tax obligations involves changing the ownership of various assets in advance to bypass the probate courts.
There are numerous solutions available
Taking on a co-owner while still alive is one way that testators reduce their potential estate tax obligations. Depending on how they hold jointly-owned resources, they may be able to prevent the asset from passing through the probate courts at all.
In cases where people may not want to immediately share ownership, they can make plans for a transfer after their death. Deeds for real estate and transfer-on-death designations for financial accounts can allow for asset transfers that do not require probate court oversight.
People can also transfer their valuable resources to a trust. They can retain partial control over those assets while simultaneously diminishing their personal holdings and the possibility of estate taxes.
Every estate tax plan should be unique based on the assets that may eventually comprise the estate and the legacy goals of the testator at issue. Creating an inventory of assets and reviewing different solutions are both smart estate planning moves for those who worry that tax obligations could diminish their legacy after they pass.
