Planning for Estate Taxes

Federal and state taxes applied to an estate can considerably reduce its value before assets are distributed to beneficiaries. Death can result in large liabilities for the family, necessitating generational transfer strategies that can reduce, eliminate, or postpone tax payments. During the estate-planning process, there are significant steps that individuals and married couples can take to reduce the impact of these taxes.

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AB Trusts

A married couple, for example, can setup an AB trust that divides into two after the death of the first spouse.

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Education Funding Strategies

A grandfather may encourage his grandchildren to seek college or advanced degrees and thus transfer assets to an entity, such as a 529 plan, for the purpose of current or future education funding. That may be a much more tax-efficient move than having those assets transferred after death to fund college when the beneficiaries are of college age. The latter may trigger multiple tax events that can severely limit the amount of funding available to the kids.

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Cutting the Tax Effects of Charitable Contributions

Another strategy an estate planner can take to minimize an estate's tax liability after death is by giving to a charitable organization while alive. The gifts reduce the financial size of the estate since they are excluded from the taxable estate, thus lowering the estate tax bill.  As a result, the individual has a lower effective cost of giving, which provides additional incentive to make those gifts. And of course, an individual may wish to make charitable contributions to a variety of causes. Estate planners can work with the donor to reduce taxable income as a result of those contributions or formulate strategies that maximize the effect of those donations.

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Estate Freezing

This is another strategy that can be used to limit death taxes. It involves an individual locking the current value, and thus tax liability, of their property while attributing the value of future growth of that capital property to another person. Any increase that occurs in the value of the assets in the future is transferred to the benefit of another person, such as a spouse, child, or grandchild.

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The method involves freezing the value of an asset at its value on the date of transfer. Accordingly, the amount of potential capital gain at death is also frozen, allowing the estate planner to estimate their potential tax liability upon death and better plan for the payment of income taxes.

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Disclaimer: At PAA, our desire is to be a GO TO Resource for everything you need for the Parkinson's diagnosis to live a quality life with PD. We want to make sure you have all resources you need as you plan your journey with Parkinson's now and into the future so that you can reflect and discern what decisions you want to make with the appropriate insights to help you choose and build a plan that is unique as your journey. The PAA, nor the contents on this website, should never be a replacement for professional expertise and guidance from medical, legal, or financial professionals. Our goal is to equip you for those conversations. As such, the PAA cannot be held accountable for your choices and outcomes while navigating your Parkinson's condition.