How Do I Avoid the Estate Tax?

As we’ve described in a previous blog, estate tax is a one-time tax that affects some people upon their deaths. It is based on the total value of your assets. It includes things like bank accounts, real estate, and stocks. This tax is based on whether or not your total net worth is more than about 11.6 million dollars as of 2020. If your sum is less than that amount, then you are not charged an estate tax. If your sum is more than that, you will be taxed a percentage of 40% for any surplus amount that goes over that 11.6 million dollar benchmark. This tax is a Federal Tax. California currently has no state tax. 

You have nine months, after you pass away, for your beneficiaries to pay this tax in full. Yes, that could mean fire sale of real property and other assets. This amount of time does not let the recovery of pain from your loss. Worrying about taxes is the last thing on your mind at a time like that. Take a few easy steps today to help them avoid a major headache in the distant future. 

How Can I Avoid the Estate Tax? 

There are several ways to avoid the estate tax, and these options fall under the category of advanced estate planning. 

Here are a few examples of those options: 

  • Irrevocable Trusts: The goal here is to move assets out of your “estate”, so that they won’t be counted when we calculate the tax owed. There are several types of irrevocable trusts depending on your asset type and time horizon. 
  • Transfers/Sales: Usually, this strategy is used to “freeze” the assets value on the date of transfer and avoid tax on the appreciation.
  • Fractionalization: This option involves the division of a property among multiple owners. This option will help devalue your “estate” to reduce taxes. 

When Should I Start Advanced Estate Planning? 

You should start as soon as possible. In order to benefit from these options, you should have them already in place prior to your passing. Keep in mind this is only necessary if you need more than the exemption amount, which is going to eventually sunset to $5 million in 2026. So, get moving and try to get it done right now so you can take advantage of the extra $11.6 million per couple that you could use today. Contact us today at Aliav Law to find the route to estate planning that best suits the needs of you and your family. We know these decisions are hard to make for anyone, so let a trusted professional guide you. You will never regret planning ahead for your loved ones. 

Your next step is to join our facebook group called “Parents Protecting Assets in California”. We provide valuable information on protecting assets from future in-laws and creditors!