You worked hard to be able to leave a legacy behind for those you hold dear, but, depending on how large your estate is, your loved ones may stand to lose a sizable portion of it to estate taxes. In some cases, you may be able to reduce or even eliminate your estate tax burden, thereby freeing up more of what you worked hard to amass for your intended beneficiaries.
How might you be able to reduce your estate tax burden and maximize how much your loved ones stand to inherit?
1. By making charitable donations
Whether you have to pay estate taxes at all depends on how large your estate is. If you need to make it smaller so that estate taxes do not come into play, consider making charitable donations. To do so, consider using one of two types of charitable trusts: the charitable lead trust or the charitable remainder trust.
2. By giving away some of your wealth
Another way to avoid or reduce your estate tax burden involves giving away some of your wealth now. By doing so, you may be able to reduce the size of your estate to the point where it is no longer valuable enough to undergo taxation.
3. By creating an irrevocable life insurance trust
A life insurance policy is often not subject to taxation. However, if you put one in a trust, it may increase the size of your estate to the point where you must pay estate taxes. You may be able to avoid this by placing the policy in an irrevocable life insurance trust and then transferring ownership of it to someone else.
Please note that these are some, but not all, of the methods you might employ to lower your estate tax burden or, ideally, avoid estate taxes entirely.