Estate Planning Tips to Reduce Excessive Taxes

The more your estate is worth, the more likely it is that the IRS will audit your return. For example, in 2012 the IRS audited 14.5 percent of returns filed for estates worth less than $5 million. But that figure jumps drastically to 58.6 percent of estates worth between $5 and $10 million, and the IRS actually audited 100 percent of estates worth more than $10 million. Some even endured more than one audit!

High-value estates are frequent targets of audits, and most often are found to owe additional federal income taxes. These facts should underscore the importance of meeting with an estate planning attorney, not just once, but over the course of your retirement years so that you can continually adjust your estate plan to avoid excessive taxation.

There are numerous strategies that you can employ, but the following examples are most commonly used.

Charitable giving. By placing funds in a charitable remainder trust, you can remove assets from the estate while still drawing lifetime income from those funds. Plus, you can leave a legacy to the persons or organizations of your choice.

Annual gift exclusions. You can gift up to $14,000 annually to the recipient of your choice, without triggering the gift tax, and that amount doubles to $28,000 for married taxpayers filing joint returns. You can even make additional gifts, beyond those limits, if the gift is given directly to a school or medical provider to cover tuition or medical bills for your recipient.

Family limited partnerships. This maneuver helps you reduce the value of your estate by putting assets into a partnership, and then dividing partnership shares among family members. Your heirs can’t sell their shares or control the partnership, so those shares are valued quite low by the IRS.

As you can imagine, it would be unwise to pursue one of these avenues without first consulting with an estate planning attorney. There are many legal pitfalls and IRS loopholes to keep in mind while making a long-term plan for your estate. Give us a call, and we can help guide you through these tricky decisions as you seek to protect your assets.

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