Estate planning is a crucial step in protecting your assets and loved ones. But it faces taxes which can result in financial issues for beneficiaries. Nonetheless, there is an exemption for this tax. According to the Internal Revenue Service (IRS), the basic exclusion amount for people who died in 2022 is $12,060,000, and in 2023, it will be $12,920,000.
Thus, if the value of your assets is more than the exclusion amount, it will be best to employ tactics to reduce taxes to protect heirs from any burden. This guide discusses two of them.
Gift to your family
Americans have been leaving gifts for their families to avoid high estate taxes for years. Although this strategy works, you should be informed about its annual exclusion amounts, as the IRS also charges taxes on gifs.
In 2022, the exclusion amount of gift is $16,000, and in 2023, it will increase to $17,000. Therefore, ensure that the value of the gifts you give your loved ones is within the stated exclusion amounts.
Make charitable donations
If you donate an asset to a charity, it won’t be taxed, provided the recipient is a qualified organization. When you donate to a charity, the value of your assets lowers, and so does your tax burden. Besides, if you donate to or below the IRS exclusion amount, you may avoid taxes altogether.
Further, you may choose to use charitable remainder trusts. With this method, one or more beneficiaries can get annual income for life or a determined term. When the payment term ends, the remainder of the trust will go to a qualified U.S charitable organization(s).
It is possible to reduce or avoid estate taxes legally. However, you should obtain adequate information on how to do this to make the right moves.