Planning an inheritance is an emotional process. You are likely to reflect on how far you have come and the legacy you have built. Naturally, you want to determine the best way of passing on the inheritance you built to your loved ones. This requires proper estate planning and a deep understanding of different tax implications.
Your inheritance is exposed to three different taxes – inheritance tax, capital gains tax, and estate tax. On top of this, some items may be taxed at both federal and state level. This is why most people try hard to protect their inheritance from taxes. After all, you did not work so hard to have your hard-earned legacy reduced to nothing by taxes.
Attorneys at SBEMP (Slovak, Baron, Empey, Murphy & Pinkney) law firm provides professional legal advice and services to clients in Palm Springs, Palm Desert, Rancho Mirage, Inland Empire, Orange County, Coachella Valley, Costa Mesa, San Diego, New Jersey, New York, and surrounding communities.
Here are a few tips to protect your inheritance in the hands of your loved ones:
Alternate Valuation Date May Help
Estates, for tax purposes, are evaluated as per the fair market value prevalent at the time of the decedent’s death. You can choose to select an alternate valuation date. This can be 6 months following the decedent’s death. This is usually a preferable option if the estate valuation is expected to be less after 6 months. Lower gross value of the inheritance will limit tax liability. Any property that will be sold within this 6-month period will not be valued on the date of death, but the date of the sale.
Transfer Inheritance Assets Into a Trust
You may want to consider placing the assets into a trust if you plan on creating an inheritance. Trust will work alongside your last will and testament as an estate planning document. The assets would be transferred into a trust, which is not the same as an individual.
A major benefit of trust is that it passes on assets to the beneficiary without going into probate. This helps in protecting your privacy and prevents exorbitant fees. You should consider irrevocable trust if you want to protect your estate from income and estate taxes.
Reduce IRA Distributions
Retirements accounts are among the most common types of inheritance assets. All IRA distributions are taxable except Roth IRA. Your spouse will have their entire lifetime to spread the distributions. Moreover, your children and other beneficiaries will only get 10 years for distributing the account. An astute way of minimizing IRA taxes is through a Roth conversion.
Consider Charitable Gifts
Some people may think it is counterintuitive to make charitable gifts. Based on this, you may be able to lower your overall tax liability by making sizeable donations and gifts. You can give away gifts amounting to $15,000 without being subject to gift taxes. This means you can also make small gifts to your beneficiaries before you pass away. This will help you to lower the overall taxable amount.
Lawyers at the SBEMP law firm serve clients from Palm Springs, Palm Desert, Rancho Mirage, Inland Empire, Orange County, Coachella Valley, Costa Mesa, San Diego, New Jersey, New York, and nearby locations for a range of legal practice areas.
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SBEMP LLP is a full service law firm with attorney offices in Palm Springs (Palm Desert, Inland Empire, Rancho Mirage, Indian Wells), CA; Indian Wells, CA; Costa Mesa (Orange County), CA; San Diego, CA; New Jersey, NJ; and New York, NY.
DISCLAIMER: This blog post does not constitute legal advice, and no attorney-client relationship is formed by reading it. This blog post may be considered ATTORNEY ADVERTISING in some states. Prior results do not guarantee a similar outcome. Additional facts or future developments may affect subjects contained within this blog post. Before acting or relying upon any information within this newsletter, seek the advice of an attorney.