When estate planning in Arvada and Jefferson County, it’s important to think about how estate taxes will come into play. Basically, estate taxes are taxes that the government charges based on the value of the estate BEFORE everything is distributed. Federal estate taxes can be up to 40% and must be paid promptly after the estate owner’s passing (usually within 9 months of the passing). Sometimes, it is necessary to liquidate assets in order to pay these taxes. However, with proper planning, you can reduce the impact taxes will have on your estate for your heirs.
How to Determine Your Estate’s Net Value
The net value of your estate is determined by adding the value of all your assets and then subtracting your debts. Your house, business, bank accounts, properties, investments, retirement plans, and life insurance policies should all be included. As of 2019, the federal estate tax exemption is $11.4 million for an individual. If your estate’s net value is $11.4 million or less, then your estate will not have to pay the federal taxes. But, if your estate is valued at more than $11.4 million, your estate will be taxed at the 40% estate tax rate.
Things You Can Do with Estate Planning to Reduce or Eliminate Estate Taxes
One thing you can do is, if you are married, use both exemptions. By using both spouses’ estate tax exemption, you are doubling the protected amount to $22.8 million. Another thing that you can do is remove assets from your estate. Basically, you can make your estate smaller. Some easy ways to do this include:
- Monetary gifts (up to $14,000 for individual or $28,000 if married) each year per recipient;
- Unlimited amounts for donations to charity;
- Transfer your life insurance policy to an irrevocable trust; or
- Create a personal residence trust.
These are just some of the ways for you to plan for or reduce estate taxes. Ann experienced estate planning attorney can help you figure out which avenues are right for you and your estate.