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Your Guide to Reducing Estate Taxes

Learn the most common strategies to reduce estate taxes and leave your heirs a greater inheritance.

Many people don't realize just how big a bite taxes will take out of their estate until they start the estate planning process. If you plan on leaving your heirs a sizable inheritance, it's paramount you see an estate planning professional to learn how you can lower the tax burden. With careful planning, estate taxes can be significantly reduced or even eliminated altogether. Let's take a look at the most common strategies.


Reduce estate taxes with annual gifting

The first step in estate tax planning for many people is to take advantage of the annual gift tax exclusion.


“In addition to the roughly $11.2 million lifetime estate tax exemption, each individual can give away up to $15,000 in assets per year without triggering gift taxes,” explains Cadence Bank Senior Vice President and Dallas Market Executive Felix J. Meneses. “This is a good way to remove assets from your estate over your lifetime and potentially lower estate taxes on your heirs.”


For example, consider a married couple who is each 45 years old. By giving away $30,000 in assets each year for 30 years, they could reduce the size of their estate by $900,000 by the time they are 75 years old. This could potentially save their heirs $360,000 in estate taxes.


“Or if the size of their estate is close to the lifetime exemption, it could possibly get them under the exemption, which would eliminate estate taxes altogether,” says Meneses.


Charitable giving and CLTs

Individuals and couples who want to give away more than $15,000 per year might consider utilizing a charitable lead trust (CLT). “This type of trust can be especially beneficial if your estate includes appreciated assets with a low basis,” says Meneses.


The CLT will provide fixed annuity payments to a charitable organization for a set number of years. After this time or upon your death, the remainder of the assets will transfer to your beneficiaries. “You will also receive a tax deduction during the year you fund the trust, so this strategy can reduce your current income taxes as well,” says Meneses.


CLTs may also be attractive in the current low interest rate environment. Meneses explains: “The discount rate used to determine the amount of the annuity payment to the charity may be lower than returns that could be generated by the trust if trust assets are invested well. Therefore, beneficiaries could end up getting more after you pass away.”


The role of irrevocable trusts in lowering estate taxes

Irrevocable trusts are another tool for removing assets from your estate during your lifetime in order to bring the value of your estate underneath the lifetime exemption.


According to Meneses, you can still control and benefit from these assets while you’re alive — for example, by specifying how assets are distributed and managed. “But since ownership is transferred to a trust, these assets won’t be considered part of your estate when you die,” he explains.


Where insurance comes in

Despite careful planning, individuals and couples may not always be able to completely eliminate estate taxes. Meneses says this is where life insurance comes into play.


“Life insurance can provide liquidity so your heirs can pay estate taxes and other estate settlement costs after you die,” says Meneses. “This may keep heirs from having to sell a valuable asset like a family business or farm in order to meet estate tax obligations.”


Single premium whole life insurance is usually the best type of policy for accomplishing this objective, Meneses adds. “But make sure that you are not the owner of the policy,” he stresses. “If you are, it will be considered part of your estate.”


One way to accomplish this goal is to establish an irrevocable life insurance trust (ILIT) that will own the life insurance policy. “Then assets and the policy’s death benefit will pass through to heirs directly without going through probate,” says Meneses.


Download the estate planning ebook from Cadence Trust & Asset Management


For more information about how to reduce estate taxes, download our free ebook, “Estate Planning: Why It’s Important and How to Get Started.” Or contact Cadence Trust & Asset Management at 800-275-7850 with your questions about reducing estate taxes.



This article is provided as a free service to you and is for general informational purposes only. Cadence Bank makes no representations or warranties as to the accuracy, completeness or timeliness of the content in the article. The article is not intended to provide legal, accounting or tax advice and should not be relied upon for such purposes.

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