Due to the fact that estate laws change so frequently, it can be difficult for Clearwater estate planning attorneys to devise an effective estate plan that minimizes the amount of taxes that an estate may be subjected to. In recent history, only those estates that have high values are subject to the federal estate tax. Additionally, estate tax exemptions tend to increase over time to properly account for inflation.
Federal Exemption Rate
Clearwater estate planning attorneys can explain that the federal exemption rate in 2014 was $5.34 million. This means that the value of the estate over this amount is subject to a large estate tax.
State Estate Tax
While some states also impose an estate or inheritance tax, Clearwater estate planning attorneys can explain that Florida does not impose such a tax. State estate taxes tend to have a much lower exemption rate than the federal exemption rate.
Ways to Avoid Estate Tax
If you anticipate that the value of your estate may exceed the federal exemption rate, Clearwater estate planning lawyers may advise you to take advantage of one or more of the following strategies to help reduce your tax liability.
Leave It to Your Spouse
The federal exemption rate excludes those assets that you specifically devise to your spouse. You can leave your entire estate to your spouse tax-free. However, when your spouse dies, his or her estate will be subject to the exemption rate.
Use an Irrevocable Trust
Clearwater estate planning lawyers can explain that revocable trust assets are still used to calculate the total amount of tax due because the settlor still has control of these assets. However, irrevocable trusts function differently because you do not retain control of these assets. The trust becomes the legal owner of the assets. Through an irrevocable trust, you can transfer assets to beneficiaries without incurring taxes, even if their value exceeds the exemption amount.
Use a Different Trust
Additionally, your estate planning lawyer can advise you of other potential trust options. For example, a credit shelter trust can have assets that are equal to the value of the federal exemption rate. If you establish this trust at your death, your spouse can still receive income from these assets like he or she would have if you devised them specifically to your spouse in a will. This strategy can also help you avoid putting your spouse’s estate over the federal exemption limit.
Minimize the Value of Your Estate
Another potential way that you can minimize your tax liability is by decreasing the value of your estate. For example, you can make gifts of up to $14,000 each year without having to pay gift taxes while keeping within the annual exclusion limit. Certain gifts do not count toward the annual exclusion, such as tuition or medical expenses that you pay on behalf of another person.
If you would like to learn about other ways that you can potentially avoid incurring federal estate tax, contact the Coleman Law Firm at 727-461-7474.