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Heritage Tree LogoCan an Estate Plan Reduce Estate Taxes?

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You may think that you set aside enough assets in your estate plan for your loved ones to be comfortably supported when you are no longer around. However, you must consider the serious tax implications of your estate plan. More specifically, Pennsylvania enforces a 4.5 percent estate tax to transfers to direct descendants and other lineal heirs. Continue reading to learn how you can strategize your estate plan to reduce estate taxes and how one of the experienced Butler County irrevocable tax trust attorneys at Heritage Elder Law & Estate Planning, LLC can help.

How can an estate plan reduce estate taxes?

One of the most common ways individuals attempt to reduce the taxes on their estate is through establishing a trust. The added benefits of a trust are that it allows individuals to reduce administrative costs, reduce expenses, avoid the probate process, and avoid family disputes in probate court, among other things.

But if your specific concern is with the tax implications of your estate, then you may consider establishing an irrevocable tax trust. Essentially, this type of trust is used to avoid federal estate tax. However, you may only have to worry about this tax if your assets stand at $12,920,000 or more.

More commonly, this type of trust is used to avoid Pennsylvania’s inheritance tax. This is because beneficiaries other than your spouse or a charity (i.e., children, grandchildren, siblings, nieces/nephews, etc.) are required to pay an inheritance tax to the Commonwealth of Pennslyvania upon inheriting your estate. Therefore, the inheritance tax that would have been due is protected in an irrevocable tax trust, so as long as the assets are in the trust long enough.

How can an estate planning attorney help me avoid these taxes?

Our firm understands that everyone’s financial and familial situation is unique. In other words, an estate plan that works for one individual may not necessarily work for another.

Rest assured, an estate planning attorney may help you determine the best strategy for reducing estate taxes. If your attorney concludes that an irrevocable tax trust is not the best fit for your financial status and family dynamic, then they recommend any of the following alternatives to avoid these taxes:

  • Setting up a charitable trust or a charitable transfer.
  • Setting up lifetime gifts for your children and/or grandchildren.
  • Setting up gifts for your minor beneficiaries.
  • Setting up a marital trust.
  • Setting up an irrevocable life insurance trust.
  • Setting up a qualified personal residence trust.
  • Setting up a special use real estate valuation.
  • Setting up a family limited partnership.

Please consider contacting a skilled Butler County estate planning attorney for your estate plan. Our team at Heritage Elder Law & Estate Planning, LLC is ready and willing to assist you.

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