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The estate tax rate varies between 37% and 50%. Estate tax planning can save significant amounts of estate tax for individuals whose estate exceeds $1 million, the amount of the current estate tax exemption. One technique is to utilize a bypass/marital trust approach to utilize the estate tax exemption of both a husband and wife. Another is to reduce the size of the taxable estate by making lifetime gifts to children and other beneficiaries. Another is to make charitable gifts, which can often give rise to income tax as well as estate tax benefits. The use of trusts is also favored in reducing estate tax. For example, an irrevocable insurance trust can remove the value of life insurance proceeds from the taxable estate. The following are some commonly used estate planning techniques for saving taxes: Revocable Living Trust: A revocable living trust, if properly drafted and funded, can eliminate the need for probate. In the case of married couples, such trusts allow the full use of each spouse’s estate tax exemption. Irrevocable Life Insurance Trust: A properly drafted insurance trust can remove the value of life insurance proceeds from your taxable estate, while preserving the income tax exclusion available to life insurance proceeds. Qualified Personal Residence Trust: Another useful estate tax savings device, a QPRT is an irrevocable trust holding your personal residence. You retain the right to live in the house for a specified number of years, and the house then passes to your children or other beneficiaries. Charitable Remainder Trust: With a CRT, your assets are transferred to an irrevocable trust. You retain a lifetime income or annuity interest in the trust assets. At your death, the trust assets pass to the charity of your choice. Such trusts can provide valuable income and estate tax deductions. Family Limited Partnership or Family Limited Liability Company: An FLP or FLLC is a means of transferring a family business or other investment assets to your children at a reduced gift tax cost. You retain full control over the management and control of the gifted assets, while reducing your taxable estate. |
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