Tax and Estate Planning

While there is an estate tax exemption of $12.06 million for 2022 and more for married couples, estate taxes can be steep if you have accumulated more wealth. Other federal taxes include gift tax and generation-skipping transfer, or GST, tax. Gift tax applies if you give assets away without expecting anything in return. GST tax may kick in if you give money to anyone two or more generations younger than you, for example, your grandchildren. 

Your state may also levy estate and gift taxes. Some states have an inheritance tax which has to be paid by the beneficiary of the assets. Fortunately, an inheritance isn’t considered income at the federal level.

There are different ways to mitigate estate taxes, including giving away assets during your lifetime. For example, you can use the annual gift tax exemption to gift $16,000 to any one person, and there’s no limit to the number of gift recipients. The exemption amount doubles for married couples. If you don’t want to give away cash or assets, you can pay for your children’s or grandchildren’s tuition and reduce your taxable income. 

Another way to remove assets from your asset and reduce the estate taxes due is to set up an irrevocable trust. You can transfer your assets to the trust, allowing your heirs to inherit your assets intact without being affected by a large tax bill. There are many options on how to structure a trust. The biggest downside with an irrevocable trust is that you can’t change it later.

The federal estate tax exemption allows your heirs to inherit a certain amount of wealth without paying estate taxes. The current estate tax exemption is $12.06 million. While this amount of inheritance can be excluded from your federal income, your state may levy local estate or inheritance taxes. 

You can protect your estate from taxes by giving away assets during your lifetime. You can use the annual gift tax exemption to give away cash or other assets, and you can also pay tuition for your children or grandchildren to reduce your taxable income and provide for them. Another way to protect your estate from taxes is to set up an irrevocable trust. 

Tax and estate planning are important to protect your accumulated wealth. You want to preserve as many of your assets as you can for your heirs instead of having to pay estate taxes. Estate taxes might even force your heirs to sell some assets to pay the tax bill. Proper tax and estate planning can help you leave a legacy for your beneficiaries the way you intended. 

Our experienced financial advisors are ready to help create your tax and estate plan. We’ll aim to make sure your legacy lives on and your heirs receive the wealth you’ve accumulated for them. Without an estate plan, you risk having your estate significantly reduced by federal and local estate taxes. Call us today to protect your wealth for the next generation. 

This information is not intended to be a substitute for specific individualized tax or legal advice. We suggest that you discuss your specific situation with a qualified tax or legal advisor.

LPL Financial Representatives offer access to Trust Services through The Private Trust Company N.A., an affiliate of LPL Financial.