Hi, I’m Dan Weiner, founder of Weiner Law. One question we’re often asked is – how can high net-worth families minimize estate tax?
The federal estate tax exemption has been a hot topic in politics and estate planning. In 2022, the federal estate tax for an individual was set at around $12 million and increased slightly in 2023. But what does this mean, and how does it change your planning? The federal estate tax exemption amount determines whether or not your estate, or your family, will have to pay a federal estate tax.
For example, an individual who passes away with assets in excess of 12 million dollars in their estate must pay a federal estate tax on the excess currently at a rate of 40%. The exemption amount is often adjusted annually to reflect inflation but can also be subject to change at the congressional level.
For individuals close to the federal estate tax exemption, several estate planning devices can minimize the estate tax due upon your death. Irrevocable trusts are often employed with a view to transferring a portion of your assets out of your estate so that those assets will not be subject to estate tax after you die.
Typically, transferring assets to an irrevocable trust involves surrendering an element of control over the assets in contrast to when you create a revocable trust which allows you to maintain control. Your children will usually be the beneficiaries of the irrevocable trust, but often a friend or family member will be the trustee and control the assets.
If you serve as trustee and continue to control the assets, the IRS might consider you still to be the owner of those assets, and that could subject them to estate tax after you die, even though that’s not the intention.
Creating an irrevocable trust to minimize estate tax is complex planning that should not be undertaken without first carrying out a full analysis of the various options available to you.
Summary
If your state does not implement an estate tax, the federal estate tax kicks in. The exemption for this tax is adjusted every year, to reflect inflation or at the congressional level. If you have a considerable amount of assets that may exceed the exemption, an irrevocable trust can provide certain advantages. However, do consult with an experienced trust attorney such as from Weiner Law before making any major decisions.
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