The federal estate tax exemption amount determines whether your estate your family will pay.
One question we’re often asked is how can high net worth families minimize estate tax?
The federal estate tax exemption has been a hot topic in politics and estate planning.
In 2022, the federal estate tax for an individual has was set at around $12 million, and increased slightly in 2023.
But what does this mean and how does it change your planning?
The federal estate tax exemption amount determines whether or not your estate your family will have to pay a federal estate tax.
For example, an individual who passes away with assets in excess of $12 million in their estate must pay a federal estate tax on the excess, currently at a rate of 40%.
The exemption amount is often adjusted annually to reflect inflation, but can also be subject to change at the congressional level.
For individuals close to the federal estate tax exemption, several estate planning devices can minimize the estate tax due to upon your death,
Irrevocable trusts are often employed with a view to transferring a portion of your assets out of your estate so that those assets will not be subject to estate tax after you die.
Typically, transferring assets to an irrevocable trust will involve surrendering an element of control over the assets, in contrast to when you create a revocable trust which allows you to maintain control.
Your children will usually be the beneficiaries of the irrevocable trust, but often a friend or family member will be the trustee and control the assets.
If you serve as trustee and continue to control the assets, the IRS might consider you still to be the owner of those assets and that could subject them to estate tax after you die, even though that’s not the intention.
Creating irrevocable trusts to minimize estate tax is complex planning that should not be undertaken, without first carrying out a full analysis of the various options available to you.
