Forestall Estate Taxes When You Pass Away
To help your heirs avoid estate taxes on what they inherit from you,
start planning now with these important tips:
- It's often a good idea to establish a revocable living trust.
This won't help you avoid estate taxes, but you
will avoid those expensive probate
courts. However, it can cost thousands of dollars to go through the
legal process of setting up such a trust. It's also something that has
to be constantly updated as you acquire more possessions.
- By 2006, $1 million of your estate is tax-exempt.
However, many
people underestimate the value of their estate. You should total up
your life insurance, home value, retirement plans and your other financial
accounts.
- You have a $10,000 yearly "gift exclusion". That means you can give
up to $10,000 per year to your heirs, and the IRS won't tax them on that
gift. If you're married, that's $10,000 per spouse.
- You can pay for your children's educational and medical expenses without any gift limitations.
- You can set up trusts for your home, business and/or your life insurance policy,
which will avoid most of the estate tax. These are advanced techniques, so
consult a qualified financial planner. State estate-tax laws vary
widely, so careful planning is necessary. But it could cost you up to
$5000 for a good financial planner.
Here are some facts about revocable living trusts:
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Forestall Estate Taxes When You Pass Away 
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Time to complete:
| A few hours |
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Money you'll spend:
| $500 to $5000 (the less expensive do-it-yourself kits are legally unreliable) |
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What you'll get:
| Thousands of dollars in reduced probate court costs, if you have a large estate. |
Situations where you should consider a revocable living trust:
- Ask a local lawyer if your state is known for tough probate courts
and whether he recommends a trust (i.e. California, Florida and New York can be
very expensive.)
- If you own real estate in two different states, you should consider a living trust for the property in one state to avoid probate courts there.
- If you're currently single, probate courts would come into play when you
die (but not when a surviving spouse inherits property.)
- Read this
Explanation of Living Trusts by the Federal Trade Commission for more information.
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Further Reading:
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