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These 3 tips can help you lower the value of your estate

On Behalf of | Mar 29, 2020 | Estate Planning |

Your estate is worth millions, so you know that there is a true risk of facing an estate tax. While an estate tax is only charged on those who have an estate worth $11.4 million or more as of 2019, the reality is that any amount over that amount is highly taxed. Estate taxes may not seem fair, and you are right to start looking into ways to reduce the taxes you face.

Estate tax limits are always changing, so these options are a good idea to limit and reduce your estate’s value to a point where you won’t be at risk. Here are three great ways to reduce the risk of being taxed.

1. Put together an irrvocable life insurance trust

Many people in your situation have multimillion dollar life insurance policies, which are a great idea for leaving behind money for your beneficiaries. However, while these policies generally aren’t taxed, they could be if they pass through your estate first.

A good way to avoid this is by setting up an irrevocable life insurance trust. The trust is set up in another person’s name, transferring ownership of your assets immediately. By making it irrevocable, you’re showing that the assets are no longer able to be accessed by you, truly taking them out of your possession.

If you can, set up this process soon, because there is a three-year look-back period where the amount could still be included in your estate’s value.

2. Put your home into a qualified personal residence trust

Another good way to prevent estate taxes is by transferring your home out of your name. Using a qualified personal residence trust, or QPRT, you can freeze the market value of your home or vacation home.

Throughout the trust’s term, you can remain in your home. When the term ends, your beneficiaries receive ownership of the property.

3. Don’t forget to donate

Finally, you could look into setting up charitable donations or a charitable lead trust. With a charitable donation, assets are passed on to organizations that are tax-exempt. You’ll lower the overall value of your estate by passing on those assets, and you will also receive a tax break. After you pass away, the trust will pay out to the designated beneficiary.

These are just three of many ways that you can minimize the value of your estate and make sure that there is more to pass on to your beneficiaries.