Taxes help fund public goods, and most taxes come from individual income, corporate income, sales and payroll taxes. Although estate tax doesn’t make up a substantial portion of Connecticut’s tax revenues, every family wants to avoid estate taxes if possible.
Give assets to others
When it comes to estate taxes, giving away assets isn’t just a good thing: It’s a strategy. If you’re going to give assets to your loved ones once you pass away, there may be benefits to doing so early. In 2021, the federal government only taxes estates worth $11.7 million or more. Giving away assets can help you keep your estate under this amount, helping you avoid estate taxes.
Give money to charity
Donating money to charity can have positive effects on your overall well-being. It can also limit your tax burden. In addition to helping you avoid that $11.7 million estate tax threshold, you can deduct qualified charitable contributions from your taxable income, which makes giving money to charity a great idea for anyone with an income stream.
Embrace trusts
If you have an estate, you’re responsible for paying taxes on that estate. Furthermore, you own the assets in the estate, which can leave your assets vulnerable to lawsuits and debt collectors. You can establish several different types of trusts to protect your assets from the estate tax.
If you have life insurance, consider setting up an irrevocable life insurance trust. Life insurance ensures that your family won’t go without money if you unexpectedly pass away. The IRS taxes proceeds from life insurance policies, potentially hurting your family, but irrevocable life insurance trusts help shield payouts from taxes.
A qualified personal residence trust can take your home out of your estate, thereby lowering its total dollar value and helping you stay below that $11.7 million threshold. For more information about this and other estate planning tools, consider contacting an attorney with experience in structuring estates.