Most people will not have to worry about paying estate taxes because the threshold is so high. But estate taxes are not the only taxation that may occur on your estate after your death.
Your heirs may also face taxes on their inheritance. So, if you want to minimize the tax impact, you also need to think about what your heirs may have to pay.
Estate planning tools
You should use different resources to help reduce the tax your heirs may pay on their inheritance. Use transfer-on-death options and trusts to help shield them from taxes. Irrevocable trusts provide the best tax protection, but they are also risky since you give up ownership to the trust, and changing it can be incredibly difficult. Still, it would reduce taxation upon your death.
Retirement accounts
Retirement accounts pose the biggest risk for taxation. IRAs are your worst option. If you can, move the money from an IRA into a different type of account. Traditional retirement accounts require taxation of any disbursements, which could greatly reduce how much your heirs actually get. Use a Roth account instead that will allow tax-free withdrawals.
Gifting
You can also gift money up to a certain amount while you are still alive to save on taxes. As long as you do not go over the threshold, you can do this tax-free. Assets that appreciate, though, will have taxes on the appreciation value, so be cautious about that.
Leaving your heirs a huge tax bill is not what you want to do. Some careful planning can help you help them avoid this expense.
