New Jersey residents with substantial assets may craft estate plans with the intent of passing their wealth to family members or other heirs after death. However, estate taxes can potentially take away a sizeable chunk of your estate, leaving less for your loved ones.
There are several things that can be done to minimize future tax liability and maximizing the amount that is left in your estate. Before taking these steps, it is important to learn about what types of taxes may affect your estate and how much.
Everyone has a lifetime estate exemption, which sets an amount of assets that can be distributed during your lifetime or after your death, without being subject to taxes. Estate taxes are assessed after death, and estates can be taxed up to 40%. Giving assets away during your lifetime may subject you to a gift tax. Gift taxes are only imposed if the assets given away are above a certain amount.
Large estates may also be charged a state tax in the form of an estate or gift tax, and beneficiaries may be assessed inheritance taxes. The limits and rules around these taxes are complex, so talking with a professional is recommended.
Avoiding a large tax obligation
Given the possibility of losing much of your estate to taxes after death, these tips may help. If you want to help your potential heirs during your lifetime, things such as medical bills or tuition can be paid for without any tax obligations, if the payments are made directly to the provider or school.
Simply giving more of your assets away to heirs prior to death is another easy way to avoid tax liability. Just remember to be aware of the gift tax limits. An irrevocable trust is another option. There are may different types of irrevocable trusts, so it is important to find one that is best for your specific situation.
Everyone wants peace of mind knowing their loved ones will be taken care of after they are gone, and it can be disheartening to think that a major portion of the assets you’ve worked so hard for could be taken by taxes. Making prudent decisions can help ensure your estate is preserved as much as possible.
