If your estate is a large one with an adjusted gross value totaling at least $5.34 million beginning in 2014, federal estate taxes can eat up a large chunk of it. And although Arizona does not impose a state inheritance tax, estates and trusts that exceed the state exemption will owe income taxes. Other taxes may include gift taxes, generation-skipping taxes, or property taxes. Careful tax planning with the advice of a knowledgeable Arizona estate planning attorney can prevent taxes from significantly reducing the amount your heirs will receive.
The Arizona estate planning attorneys at Gorman & Jones, PLC, are experienced, knowledgeable, and skilled at creating strategies to protect your assets from estate taxes by reducing it below the federal exemption value. This can be done by creating various types of gifts and trusts, which you will fund prior to your death to remove those assets from your estate to reduce its taxable value.
You are allowed to give up to $14,000 in 2013 and 2014 to as many recipients as you wish, without any tax obligation. This is a way to reduce the size of a large estate and transfer assets to whomever you choose before your death. You are also allowed to give as much as you’d like gift-tax free to health care providers and educational institutions for education and health care expenses for family members. Gift giving should be done with the advice of your estate planning attorney to avoid pitfalls that might negate the potential benefit.
You can transfer assets from your estate by means of various types of irrevocable trusts. You will no longer own those assets, which will instead belong to the trust. You can, however, still benefit from the trust while you are alive. These are some types of irrevocable trusts that can be used to reduce the size of your taxable estate:
In a qualified personal residence trust the only asset the trust holds is your home. You transfer the title of your home to the trust but retain the right to use it.
A bypass trust is set up for the benefit of your spouse or children. In a spousal trust, the funds are removed from the estate. The spouse can draw on the trust, keeping the income within the household. When the spouse dies, the trust can be passed to his or her heirs without incurring estate taxes. A similar arrangement can be made for your children, it which case it’s called a sprinkle trust or spray trust.
This is a trust you create specifically to purchase a life insurance policy. If you own a life insurance policy, its proceeds are not taxable, but they are considered part of your estate, so having the trust purchase the policy can lower your estate’s value while protecting your family.
This is a trust that holds shares of a privately held company that are undervalued and then allowed to appreciate. The appreciation in the value of the shares is not taxable.
Gifts and trusts have advantages and disadvantages and may be complicated to set up properly. You should carefully review every aspect of your estate and your wishes for its distribution with your attorney to determine the most appropriate strategy for your circumstances and to ensure that whichever tax-sparing devices you decide on will be implemented properly.
The attorneys at Gorman & Jones, PLC, we have many years of experience planning and administering estates of all sizes, and we are able to advise you appropriately and to devise a strategy that will work for you and your heirs.
Call us today to schedule a free consultation to learn how we can assist you in preserving your assets for the people you love and the causes you support.