If you paid any attention to the former president's financial scandals, the Howell's on Gilligan's Island, or if you know the saga of L. Ron Hubbard, you may have gleaned that there are a few tricks moneyed people can use to pay fewer taxes. There are some basic techniques you can employ to avoid having your heirs overtaxed in the event of your death. However, creating a living trust can help you avoid paying certain taxes because money in a living trust does not have to go through probate court.
Death Taxes
Benjamin Franklin said, "The only things there are not uncertain are death and taxes." Unfortunately, you won't stop being taxed just because you die. An estate tax is imposed by the federal government when you die if your estate totals over $11.7 million. There are also a few states that will impose an estate tax, but Florida is not one of them.
If you live in the states of Maryland, Nebraska, Pennsylvania, New Jersey, Iowa, and Kentucky, your beneficiaries will then have to pay a tax on the money that they have inherited. Your trust attorney can arrange to have the taxes paid for them.
Living Trusts That Can Help You Avoid Taxes
Trusts are accounts containing property that will be transferred to beneficiaries who are alive when the trust-maker passes away. When you have a trust, the property in it is not subject to probate. There are two types of living trust.
Irrevocable Trust
When you make an irrevocable trust, you give up all rights to the property that is in it. A third party will act as a trustee. Because the funds have been relinquished to the trust, they will not be included as part of the estate when the trust-maker dies. The money in the trust will not be subject to estate taxes. This kind of trust can help someone avoid paying taxes because if their estate is worth $11.7 million and they put $1000000 of it into a trust, their estate would no longer be subject to the estate tax.
A Revocable Trust
When a trust-maker creates a revocable trust, all of the property in it is still considered theirs. When they die, the estate will still owe taxes on anything in the trust. People create revocable trust so they can change the beneficiaries or just cancel it altogether should they change their mind about leaving the property to a certain person.
Capital Gains Taxes
Even if you live in a state where your beneficiaries are not subject to an inheritance tax, it is not at all uncommon to have to pay capital gains taxes. Capital gains taxes are assessed when somebody makes money off of the inherited property. If you leave your home to your children and they sell it when you die, there are some situations in which they will be subject to taxes on the profits.
Estate planning is very complicated, and it is important to have the assistance of a good attorney when you form things such as a living trust. You worked hard for your money, and you should be able to leave your property to the relatives of your choosing and not just Uncle Sam.