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How does an estate plan effect taxes?


In addition to your annual tax return, when you die you are subject to the Federal Estate Gift Tax.  This is completely different from probate costs.  Probate costs are based on the value of the assets in your probate estate.  Death taxes are based on the size of your gross estate.  This is a rapidly changing area of law, but currently only a concern for very wealthy people.  The Robert L. Shepard Professional Law Corporation will identify if your estate might be subject to this tax, and will provide multiple strategies to avoid or reduce your tax burden.  Some common strategies include:


A. Gifting Plans: You can transfer $14,000 per person per year tax-free. So you can decide who your beneficiaries will be and start making annual gifts to them to reduce the size of your gross estate. Gift of $14,000 to ten people for ten years reduces your overall estate by $1,400,000, which would save you roughly $490,000 in Federal Estate Tax.  You can also give fractional shares of real estate or business interests that are worth more than $14,000 on a pro rata basis, but are reduced in fair market value because of their fractional nature.  This is a more aggressive gifting plan only appropriate for specific estates.


B. Charitable Giving: By making charitable donations on death, you again reduce your ultimate tax by half of what you give. Large charitable donations are a centerpiece of estate tax planning, and if the death tax was to ultimately be eliminated, charitable organizations that rely on these gifts would be too.  There are also something called Charitable Remainder Trusts that enable you to many of the tax benefits while enjoying the lifetime income of the trust.


C. Irrevocable Life Insurance Trusts: Working together with a financial planner we estimate what your ultimate tax liability might be.  Then, whole life insurance is bought and placed inside this very specialized trust so that when you pass, the trust money is not added to your gross estate for Federal Estate Gift Tax purposes and is then used to pay the tax based on the remainder of your estate.


D. Family Limited Partnerships: These are great for families that have a family business that they pass from generation to generation, and commonly used to pass real estate investing businesses.

Frequently Asked Questions about Estate Planning