Minimizing the "Death Tax"

Effective estate planning can help you to minimize or completely avoid the federal estate tax, sometimes referred to as the “death tax”.  California presently does not have a state estate tax. Some professionals call the estate tax a “voluntary” tax because you only volunteer to pay it if you don’t sufficiently plan.

You can avoid estate tax by:

• Creating a life insurance trust (ILIT) to own life insurance policies on your life.  If you don’t own it, it’s not taxed at your death.
• Gifting $13,000 (in 2012) to as many individuals each calendar year as you would like. The amount may change in later years.
• Paying tuition costs for as many individuals as you would like so long as it’s paid directly to the school.
• Paying medical costs for as many individuals as you would like so long as they’re paid directly to the medical provider.
• Gifting using your lifetime unified credit exemption which is $5,120,000 in 2012 and under current law returns to  $1,000,000 in 2013 and later years.  When gifting large amounts, consider giving into a trust and not directly to the beneficiary.
• Passing your assets to your spouse or to a trust for the benefit of your spouse.
• Leaving assets to the charity of your choice or creating your own charity or private foundation.
• Using a qualified personal residence trust (QPRT) to get the value of up to two houses out of your estate.
• Using a series of grantor retained annuity trusts (GRATs) to get assets out of your estate.
• Using a family limited partnership to reduce the value of assets for gifting purposes.
• Using charitable trusts such as the charitable remainder trust (CRT) and charitable lead trusts (CLT) which benefits a charity, provides an income stream for your family, and lessens your income tax by creating a four tiered income stream and providing a tax deduction on the value of the gift going to charity.

You don’t have to die broke to avoid estate tax.  An experience and qualifed estate planning attorney can help you to determine the best way for you to avoid the “death” tax. He or she can help you to minimize or completely avoid estate tax.  Some professionals call estate tax a “voluntary” tax because you only volunteer to pay it if you don’t plan.

You can avoid estate tax by:

• Creating a life insurance trust (ILIT) to own life insurance policies on your life.  If you don’t own it, it’s not taxed at your death.
• Gifting $13,000 to as many individuals each calendar year as you would like.
• Paying tuition costs for as many individuals as you would like so long as it’s paid directly to the school.
• Paying medical costs for as many individuals as you would like so long as they’re paid directly to the medical provider.
• Gifting using your lifetime unified credit exemption which is $5,000,000 in 2011 and 2012 and $1,000,000 in 2013.  When gifting large amounts, be sure to give into a trust and not directly to the beneficiary.
• Passing your assets to your spouse or to a trust for the benefit of your spouse.
• Leaving assets to the charity of your choice or creating your own charity or private foundation.
• Using a qualified personal residence trust (QPRT) to get the value of up to two houses out of your estate.
• Using a series of grantor retained annuity trusts (GRATs) to get assets out of your estate.
• Using a family limited partnership to reduce the value of assets for gifting purposes.
• Using charitable trusts such as the charitable remainder trust (CRT) and charitable lead trusts (CLT) which benefits a charity, provides an income stream for your family, and lessens your income tax by creating a four tiered income stream and providing a tax deduction on the value of the gift going to charity.

You don’t have to die broke to avoid estate tax.  Your estate planning attorney can help you to determine the best way for you to avoid the “death” tax.

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Timothy P. Murphy

Timothy P. Murphy is an estate planning and elder law attorney whose practice emphasizes helping people to build, preserve and pass on their wealth. He works with his clients to accomplish their goals while avoiding unnecessary court proceedings and minimizing or eliminating exposure to death taxes.

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