How Do I Protect My Estate From Taxes?

Currently, the federal estate tax exemption for an individual is $11,580,000 and $23,160,000 for married couples. While this federal exemption will increase with inflation until 2025 if Congress does not renew this bill, the estate tax exemption limit will fall to around $3,500,000 per individual. The following are three simple steps you might consider now to reduce or avoid the federal estate taxes.

1. Gift Assets While you are Alive either to a family member or charity

Minimize your estate tax liability by gifting or transferring some of your assets while you are still alive. You can also donate any amount to charity and receive tax breaks for these contributions. You are permitted to gift up to $15,000 per donor and per recipient tax-free each year.

2. Buy Life Insurance Now and Use the Benefit to Pay the Tax

The earlier you purchase this insurance, the better as you can secure a death benefit amount to cover the majority of any estate taxes you may have to pay. Though this estate planning strategy does not help you avoid estate taxes, it makes paying the tax easier for your family.

3. Set up a Donor Advised Fund

A Donor Advised Fund is a great estate planning tool as any assets you put in this trust are not counted towards your total estate value. This account allows your investments to grow tax-free as they are set aside for a charity. However, unlike a normal trust, you remain in control of the money in this account until you decide you want to donate it.