If you could choose between giving money to the taxman or giving it to your family, you would probably choose to give it to your family. Estate planning is a great way to make sure that happens.
There are two basic ways to pass on what you own to your family: before you die, or after you die. You can also do a combination of both. Your “estate” refers to everything you own. “Estate planning” is simply coming up with a plan as to how you will pass on what you own.
You or your family may have to pay tax when you transfer what you own to them. Federal and state laws govern how much tax. Gift taxes are paid on transfers made when you are alive. Estate taxes are paid on transfers made when you are dead.
There are legal ways to reduce both gift taxes and estate taxes. Here are some of the ways to ensure you give as much of your wealth as possible to your family rather than the taxman:
- Personal exemptions: a way to transfer a certain amount of money tax-free
- Marital deduction: a way to transfer to your spouse tax-free
- Lifetime gifts: a way to transfer to your children and grandchildren tax-free
- Trusts: a way to reduce your estate and so reduce the amount that can be taxed
It is important to make your estate plan sooner rather than later, as you cannot predict when you will die. While it may seem complicated, an attorney with experience in estate planning can guide you through the process. If you fail to do so, you may inadvertently be choosing to give money to the taxman instead of your family.