Tax Considerations for Complex Estate Planning

hands gesturing to piggy bank, paper cut outs of family, coins

When planning estates, wills, and trusts, it is easy to become overwhelmed. This feeling can be compounded when dealing with complex estates, such as multi-million dollar estates, high net worth individuals, or multi-property estates. 

It's important to choose an experienced law firm to help you with your complex estate planning, particularly because of the ways these types of estates are affected by taxes. Here are some key points related to estate taxes that you should know about as you begin the planning process. 

What are the tax implications?

When dealing with complex estates, it’s important to be aware of the tax implications. It is an unbearable thought to have worked tirelessly for years to provide for your family, only to have your estate depleted by taxes after you’re gone. Working with an attorney will help ensure you’ve taken the proper precautions to transfer the estate's maximum value to your family.

Tax Exemptions

Unfortunately, gifts and estate taxes can be significant. Gifts beyond $16,000 per person per year, and estates above $12.06 million per person, can be taxed at 40%. Also taxed at 40% are generation-skipping gifts. So, if you leave a gift or an estate to a grandchild, they will be taxed 40% of whatever the value is above the exemption. While this tax is daunting to think about, Johnson May Law is ready to help you create a trust to minimize these tax implications.

How can I reduce estate taxes?

Thankfully, there are methods to minimize these tax implications. Depending on the type of trust you leave, and how many people you give gifts to, your family can inherit what they deserve.

Charitable Donations

The first way to ease the tax burden is by giving charitable donations to a tax-exempt, non-profit organization. There are two ways to leave these donations in a trust: a Charitable Leads Trust and a Charitable Remainder Trust. Both of these trusts allow you to give gifts to charities, which reduces the value of your estate. Reducing the value of your estate will reduce the amount of tax your beneficiary will have to pay. To learn the intricate differences and determine which type of charitable donation will be the best to include in your estate plan, contact Johnson May.

Gifts

As mentioned above, you can leave gifts for your family. If you are willing to give smaller gifts over time, you can avoid the 40% tax burden. There is no limit to the number of people you are allowed to give gifts to, and as long as the gift is $16,000 or less per person per year, that gift will be tax-exempt. These annual gifts can begin at any time, so many people choose to begin these gifts while they are still living to pass on as much tax-exempt wealth as they can.

Family Limited Partnership

Creating a family-limited partnership is one of the best ways to protect your assets and transfer them to your children. Essentially, you will make your family members limited partners in your estate. You will still be in control, your family will have limited liability, and you can transfer assets to them over time.

In a family-limited partnership, the partners will not be taxed. Your family will own stock in your company or will become partial owners of the estate. Then, when the time comes for them to inherit your full estate, that estate will be smaller because they will already be minority owners. Because the estate is smaller, the tax implications will not be as burdensome. This process can seem complicated, but Johnson May has an abundance of experience to help you determine the best strategy for your specific situation.

Irrevocable Trusts

An irrevocable trust differs from a regular trust because once put into place, it cannot be amended or altered. There are many different types of irrevocable trusts, including life insurance trusts, charitable trusts, spendthrift trusts, honorary trusts, and self-declaration trusts.

An irrevocable life insurance trust is one of the best ways to transfer an estate to your beneficiary. When you make an irrevocable life insurance trust, you are setting up a trust to transfer your life insurance proceeds to your beneficiary. Usually, life insurance proceeds are tax-exempt. However, if the proceeds are included in the estate, they become taxable. Setting up an irrevocable life insurance trust will exclude the life insurance payout from your estate, protecting your beneficiary from the tax burden.

Irrevocable life insurance trusts must be established at least three years prior to your death, so it’s better to create it as soon as possible. Also, once established, the irrevocable trust cannot be altered without the consent of the trustee. To establish an irrevocable trust of any kind, reach out to Johnson May today and get started.

Conclusion

After years and years of hard work, tough decisions, and building an estate, the last thing you should have to worry about is how it will all be passed to your family. When there is a complex estate, it’s not as simple as writing a will and leaving your assets to your wife, children, and grandchildren.

To protect yourself, your family, and your estate, contact Johnson May today. We have experienced attorneys who specialize in business law, estate planning, and tax strategies. Let Johnson May manage your estate plan, so your goals in transferring your estate are met.

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208.384.8588
199 N. Capitol Blvd.
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Boise, ID 83702
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516 Hansen St. E
Twin Falls, ID 83301

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