Don’t overlook these two essential estate planning strategies

Essential Estate Planning Strategies for Tax beneficial savingsMany tools and methods can help minimize your taxable estate and guarantee your final wishes come true. Many should implement these two essential strategies outlined below in their estate planning.

Take advantage of the annual gift tax exclusion

Don’t undervalue the ability to make annual exclusion gifts to reduce your tax burden. The exclusion rose to $17,000 per recipient for 2023 ($34,000 if you divide presents with your spouse), an increase of $1,000.

Consider, for example, Jim and Joan combining their $17,000 yearly exclusions for 2023. This would result in each of their three children, their spouses, and their six grandchildren receiving $34,000. The couple’s estates are then reduced by a tax-free $408,000 this year ($34,000 multiplied by 12).

What if, instead, the identical sums transfer to the beneficiaries upon Jim’s or Joan’s passing? The excess of the federal gift and estate tax exemption ($12.92 million in 2023) that their estate would receive would be subject to taxation. The tax burden would be at the current 40% rate if neither a gift or estate tax exemption nor a generation-skipping transfer (GST) tax exemption were available. Therefore, giving gifts that qualify for the annual exclusion could result in significant tax savings for the family.

Use an ILIT to hold life insurance

If you have a life insurance policy, be aware that if your estate exceeds a specific threshold, estate tax may take a sizable amount of the proceeds. Your estate tax rate, the gift and gift tax exemption available at your death, and other factors will determine the precise amount.

The proceeds will not count toward your taxable estate if you don’t hold the insurance policy, though. Establishing an irrevocable life insurance trust (ILIT) is a successful way to keep life insurance out of your estate.

An ILIT owns and manages one or more life insurance policies, which are distributed per your instructions. So, you have no authority over the policy, including the ability to modify the beneficiary. However, you can design the trust to lend money to your estate. This may include paying estate taxes or other liquidity requirements.

Essential estate planning strategies for you

Remember that these two common tactics might not be appropriate for your estate plan. Contact our RRBB advisors today. We can provide you with more information about each and assist you in deciding which is best for you.

© 2023


Get free tax planning and financial advice