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Rubin Hay PC Law Blog

Sunday, October 30, 2016

3 Important Strategies to Reduce Your Estate Tax Obligation

If you are a top 1% earner in the U.S., it’s important to know that an individual’s estate is subject to estate taxes if it contains more than $5.45 million dollars in assets as of 2016.

These estate taxes, at a rate of 40 percent, can be costly — and so you should meet with an experienced estate tax planning lawyer to make sure you are truly protecting the best interests of you and your loved ones.

 Some of the strategies that can reduce or eliminate your estate tax obligations through the estate planning process are:

1) Maximize Spousal Exemptions and Trusts

U.S. tax law allows for tax-free transfers to a spouse. To that end, you and your spouse can draw up a revocable living trust stipulating that if one of your passes away, the other one will inherit the assets and property in the estate.

For example, let’s say Tom and Sarah are married and have an estate worth $8 million dollars. If Tom leaves his half to Sarah when he dies, she would receive all of that money without paying estate taxes. The problem with this scenario, however, is that Sarah would now have an estate worth more than the $5.45 million dollars exemption amount when she passes away, which means her estate will be subject to estate taxes if no further planning were done.

Working with an experienced estate tax lawyer ahead of time, Tom and Sarah can establish two separate living trusts of $4 million each. When Tom passes away, his estate would use up his $5.45 million dollar estate tax exemption, and when Sarah dies, her estate also has a $5.45 million dollar exemption. As a result, the total tax obligation for both estates would be $0.

2) Make Use of Tax-Free Gifts

You can make gifts, especially if you know who you would like to receive certain assets and have no reason to believe that will change in the future.  The best assets to gift to others are those that will appreciate in value because they will not increase the value of your estate. As of 2016, an individual may give up to $14,000 ($28,000 for couples) per year to as many individuals as they would like. So, if you have three children and seven grandchildren, you and your spouse could give away up to $280,000 each year, without paying gift or transfer taxes.

3) Establish an Irrevocable Life Insurance Trust (ILIT)

Your life insurance policy is generally counted toward the total value of your estate. Fortunately, you can prevent this by transferring ownership of your policy to an irrevocable life insurance trust (ILIT), provided that you live for at least three years after you make this transfer.

Another benefit is that you may keep the ILIT as the beneficiary of your life insurance policy, setting it up so that your spouse, kids or grandchildren are given access to periodic distributions.

Schedule Your Free Estate Planning Consultation

The bottom line is that there are numerous strategies available to reduce or avoid estate taxes — and the above are just a few examples. For further guidance on this important issue for high-het-worth individuals and families, schedule a free consultation with our experienced attorneys today: (508) 875-5222.

Rubin Hay is a law firm in Framingham and Newton, Massachusetts that delivers exceptional results in the areas of estate planning, elder law, probate, business law, and real estate law. We assist families, individuals, and businesses in Newton, Wellesley, Natick, Framingham and the surrounding areas.


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| Phone: (508) 875-5222
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| Phone: (617) 618-9160

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