When estate planning, don’t forget to consider the tax considerations. Do not transfer assets with gains from an older generation to a younger generation without tax and step-up basis considerations. These rules vary state to state and can be very complex to decipher. This is yet another reason why working with an advisor who has the resources to offer guidance on all of your income tax, estate tax, trust and legacy information is key.
If you receive assets from a deceased person’s estate, then proper use of the step-up in basis can help eliminate your federal income taxes when you sell an asset you were left. It does not apply to inherited retirement accounts or annuities. Depending on whether you live in a common law state or a community property law state, the step up in basis rules are different. Be sure to know which rules apply to you in order to maximize your benefit while minimizing taxes.
You may want to consider using an irrevocable life insurance trust (ILIT) if you have a taxable estate. Life insurance trusts give you power over your insurance policies and the money that is disbursed from them. Life insurance trusts can help you to reduce estate taxes and provide liquidity to the next generation.
With a taxable estate, it is important to make sure an attorney has reviewed your trust and taken advantage of the opportunity to double the amount exempt from this tax through the credit shelter or A/B trust provision. Credit shelter or A/B trust provisions can help you reduce federal and state taxes, particularly if you’re married. For instance, if an estate is worth over $10 million, this provision in a will could save the estate $2 million of estate tax someday.
Proper estate planning is an important piece to your retirement strategy. Click HERE to download your life and legacy builder guide and be sure to request your complimentary, no obligation financial review!