Maryland families have enough on their plate during a loss without thinking about estate taxes. Unfortunately, there’s no getting around estate taxes.
There are ways to minimize what your family will owe in estate taxes after you pass. These can include special trusts and transfers among other tactics.
Best way to give to your family members
One of the most common ways to avoid estate taxes is through marital transfers. If you die before your spouse, assets that are transferred immediately to your surviving spouse will not be included in estate taxes.
This isn’t foolproof though – your children will have to pay estate taxes on these assets once your surviving spouse passes. Thankfully there are ways to gift your assets so they don’t fall victim to estate taxes.
Transferring – or gifting – money and assets to your children while you’re alive is a great way to avoid estate taxes. Every year, you can make gifts up to a certain amount before gift tax sets in – meaning you can pass money and assets to your children tax-free.
Using trusts and partnerships
There are a number of other options for reducing estate taxes. Some families with a lot of assets might choose to start a Family Limited Partnership or Limited Liability Company to pass finances and assets down to beneficiaries.
With an LP or LLC, your beneficiaries will only have to pay income tax on what’s distributed to them. But this only happens after it’s been distributed.
Some families also use Irrevocable Life Insurance Trusts (ILITs). This estate planning tool allows you to avoid estate taxes and exercise control over how the money is used by its beneficiaries.
Choosing the right tools for you
Choosing the right estate planning tools to avoid estate taxes can be difficult. It’s important to look into all of your options before picking one or the other.