During our lifetimes, we work diligently to ensure we have the assets necessary to provide for the lifestyle we want to live as well as the legacy we wish to pass onto our loved ones. Some individuals may be very successful and have accumulated vast amounts of wealth throughout their life. In this event, certain estate planning tools will be necessary to ensure that your wealth is transferred to your heirs and beneficiaries as you plan. If your estate has an adjusted gross value totaling $11.7 million as of 2021, federal estate taxes can consume a large portion of your estate. Although Florida lacks a state inheritance tax, any estate or trust will owe income taxes if they exceed the state exemption. There may be other taxes imposed as well, which can include gift taxes, property taxes, or generation skipping taxes. With the guidance and expertise of an experienced estate planning attorney can assist you in carefully planning your estate to prevent taxes from significantly reducing the inheritance amount you leave to your heirs and beneficiaries.
The skilled estate planning attorneys at the Tampa law firm of Gorman & Jones, PLC, have the proper knowledge and experience to create tax reducing strategies to help protect your assets. Our attorneys can create various types of trusts and gifting strategies which will remove those assets from your estate and reduce its taxable value.
Beginning in 2019, an individual can annually gift up to $15,000.00 to as many people as they want without any tax obligations. This is one method of reducing the size of a large estate and transfer assets to others during your lifetime. An individual is also allowed to gift any amount of money to charities without incurring a gift tax. Additionally, any gifts to health care providers and educational institutions for education and health care expenses on behalf of a member of your family can also be deducted from the value of your estate. However, giving gifts as a mean of tax benefits should be done with the advice of your estate planning attorney and an accountant to ensure that you avoid certain pitfalls or unintended consequences that may negate the potential benefits.
By using different types of irrevocable trusts, you can transfer assets from your estate to avoid potential tax consequences. Because these assets will be owned by the trust once they are transferred, they will not be your assets. However, you can still benefit from the trust while you are alive. Listed below are some types of irrevocable trust that can be used to reduce the taxable size of your estate:
The only asset inside of a qualified personal residence trust is your residence. Title to your home is transferred to the irrevocable trust, but you still retain the right to use the residence. This trust allows you to transfer your residence outside of your estate with only a low gift tax value.
A bypass trust is established to benefit your spouse or your children. In a spousal bypass trust, assets are removed from your estate but still allow your spouse to draw from the trust, which keeps the income of the trust within your household. Upon the passing of your spouse, the trust can be passed to his or her heirs without any estate taxes. A similar trust can be established for your children, and these trusts are referred to as “sprinkle trusts” or “spray trusts.”
An irrevocable life insurance trust is created for the specific purpose of purchasing a life insurance policy. The proceeds of a life insurance policy are not taxable to its beneficiaries, but they are considered a part of your estate. By creating an irrevocable life insurance trust and having it purchase the policy, your estate’s value is lowered because the policy is not considered a part of your estate and your loved ones are still protected as the beneficiaries of the life insurance policy.
An intentionally defective grantor trust owns shares in privately held companies that are undervalued and allows those shares to appreciate. Since the shares belong to the trust, the appreciation of the shares is not taxable.
Gifting and establishing trusts for tax advantages when planning your estate can be complicated to properly set up as well as having certain advantages and disadvantages. To ensure that every aspect of your estate is planned properly, you should contact an experienced estate planning attorney who will be able to assist you in creating the most effective strategy in implementing tax-sparing estate planning mechanisms.
The estate planning attorneys at the law firm of Gorman & Jones have years of experience in the planning and administration of estates of all sizes and will be able to give you the advice necessary to plan for your estate. Call us today at (813) 856-5625 to schedule a free consultation with one of our attorneys to learn how we can assist you in preserving your assets for your loved ones.
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