Estate planning is a necessary procedure. It entails the carefully prepared distribution of a person’s assets in the case of death or an event that renders them unable to make reasonable decisions. Estate planning can help you avoid probate court, family disputes, and taxes. Some of the tax benefits of estate planning include:
- A reduction in estate taxes by taking advantage of current tax benefits.
- Trusts can eliminate death taxes such as estate taxes by taking advantage marital situations while maintaining control.
- Charitable trusts may avoid taxes on assets after death and provide current income tax benefits as well.
What Are the Deductible Tax Benefits to Estate Planning?
Tax Reductions
Like all other financial decisions, the amount of tax you pay will influence your estate plan. It is critical to realize that your financial records and earning history will live on after you pass away. The beneficiaries of your assets may be obliged to pay certain taxes. These can include income tax, retirement-type death benefits tax, or capital gains tax, depending on the circumstances and the planning done in advance.
Common Fees
There might be various expenses related to your estate plan. The most prevalent are the fees paid to design, review, and amend estate-related papers such as wills, trusts, powers of attorney, healthcare proxies, and other documents. Much of that is not tax deductible, but the question is whether any estate planning fees tax deductible? Some estate planning fees may be tax deductible, such as tax planning. So, talk to estate attorneys to make the best arrangements and minimize taxes for your estate and assets.
Inheritances
Tax savings can be obtained by specifying your retirement-type asset allocation upon your death. Nominations for beneficiaries can be bound to your will or trust as a way to ensure that your assets will be distributed in accordance with your wishes. There are a few qualifications for beneficiaries of pensions, 401(K)’s, IRA’s, and annuities upon your death. Unless the administrator of the account receives a proper beneficiary designation, that asset will may be distributed at the discretion of the trustee or according to fine print in a document seen long ago. This will not likely follow the most recent desires. You can take steps to make sure your loved ones benefit from your estate rather than the IRS or other entities by properly designating how you want your investments to be distributed. This includes tax-saving provisions in your trust and a valid, up-to-date beneficiary nomination. So, consult with your attorneys and leverage the tax benefits to estate planning.
Capital Gains
Capital gains tax is that tax assessed on the difference in value, or gain, between when an asset was sold and when it was acquired. You can pass assets along with less worry by using the current law regarding the step-up in basis. This is a big advantage when transferred to a beneficiary. This “step-up” can easily be preserved when using the grantor trust rules in both revocable trusts (often referred to as living trusts) and irrevocable trusts (often used for asset protection plans). Irrevocable trusts can also have the same advantages for tax purposes as your living trust, plus add many additional benefits.
Find out more about tax benefits and estate planning by reaching out to Paths.
