Estate Tax and the Capital Gains Tax: How to Minimize Taxes for Your Heirs
As people plan their estate, they often become concerned about estate taxes. After all, who wants the government to take a large slice of the wealth that could otherwise be passed on to your children? For the vast majority of people, this concern is unfounded. The federal estate tax exemption for 2016 is $5,450,000 for a single person and nearly $11 million for a married couple. This means that most estates will not be subject to the tax.
For some families, however, the estate tax is a legitimate and pressing concern. Those who face this issue often seek to find solutions to minimize the amount lost to taxation. An experienced estate planning attorney can help you understand all of your options as well as the tax consequences of certain investments or transfers.
Some people use investments to avoid taxes. It is important to understand that some efforts to circumvent an estate tax could trigger a capital gains tax. If investments increase in value between the time of your death and the time your heir sells them, they could be subject to a large tax burden.
Other methods for avoiding taxes include giving smaller annual gifts, paying tuition or medical expenses directly, and the use of trusts. Irrevocable trusts allow you to transfer your money, property or assets into the possession of the trust while you are still living. The trust can then immediately start being managed for the benefit of the people you choose as beneficiaries.
A special type of trust known as an AB trust can be used to leave your property to your children while giving your surviving spouse a right to continue to use the property for the rest of their life. Instead of your spouse inheriting your property now and your children inheriting it all at once later, when your spouse passes away, they legally inherit each part separately, possibly reducing or eliminating their tax burden.
When you have questions about how to pass your larger estate on to your children, consult a knowledgeable Florida estate planning attorney at the Charles Law Offices.