A common misconception is that your beneficiaries will receive the entirety of the assets that you leave behind for them. But in reality, even with a valid and enforceable estate plan, your beneficiaries may only recover a percentage of this. This is due to the estate taxes that your assets may be subject to. Rest assured, there are methods for legally reducing or altogether avoiding estate taxes. Continue reading to learn what to do to reduce estate taxes and how one of the experienced Butler County estate planning & probate attorneys at Heritage Elder Law & Estate Planning, LLC can guide you down the right path.
What are estate taxes?
Both federal and state estate taxes may apply to you. Though, the federal estate tax is less than likely. This is because, as of 2023, the federal tax exemption stands at $12,920,000 or more. And as far as Pennsylvania goes, the state estate taxes generally apply as follows:
- A 4.5% estate tax may be applied to transfers to direct descendants and other lineal heirs.
- A 12% estate tax may be applied to transfers to siblings.
- A 15% estate tax may be applied to transfers to other heirs, except charitable organizations, exempt institutions, and government entities.
What methods should I try for reducing estate taxes?
Notably, there are many different methods within your estate plan for reducing your estate taxes. You may choose a certain method that makes the most sense for your financial situation and familial situation. Just a few examples of this are as follows:
- You may transfer lifetime gifts or bequests to your surviving spouse.
- You may transfer your separate assets and share of marital property to an AB trust or QTIP trust for the benefit of your surviving spouse.
- You may transfer your assets to an irrevocable life insurance trust for the benefit of your beneficiaries.
- You may set up a family-limited partnership for the benefit of your family partners in your business.
- You and your spouse may make annual, tax-free, lifetime gifts to your children and grandchildren, so long as the collective giveaway is $32,000 or less per year.
- You may make annual gifts to minors under The Uniform Transfers to Minors Act or The Uniform Gifts to Minors Act, so long as it is $16,000 or less per year.
We understand just how overwhelming it may be to consider all the options at your disposal. But we can assure you that it is best to make this decision now before it is too late. So if estate planning sounds like something you want to kickstart today, then you must reach out to one of the skilled Butler County estate planning attorneys from Heritage Elder Law & Estate Planning, LLC. We await sitting down with you at your initial consultation.