If you are fortunate enough to have a federal estate tax problem or unfortunate enough to live in a state with a low exemption amount, it may be worthwhile to address this with some formal estate planning. The main strategy is to give away amounts above the estate tax exemption limit prior to death.
Explore This IssueACEP Now: Vol 36 – No 06 – June 2017
This can be done directly by giving away up to $14,000 per year ($28,000 if you are married) to anyone you like without using any of your estate tax exemption. This is a great way to decrease the size of your estate to an amount below the exemption limit. If you have three married children, each with three married children, that’s 24 people you, together with your spouse, can give $28,000 per year to ($672,000 total) without any estate (gift) tax implications. You can also give money to charities through various structures that may also provide you substantial income tax deductions. If you are not comfortable giving assets to your heirs at this time, you can use an irrevocable trust. The money is then out of your estate but can only be used by heirs in accordance with the rules of the trust. If you expect to owe estate taxes at death, a consultation with a competent estate planning attorney in your state could be worth hundreds of thousands or even millions of dollars to you.
Be aware that some methods of simplifying your estate planning can have unforeseen consequences. For example, placing your children’s name on the title of your investment account or home can keep those assets from passing through probate. However, they may also cause the heir to owe a lot more in capital gains taxes than they otherwise would due to the loss of the step up in basis at death.
Estate planning is a process whereby you can ensure your wishes are met, probate is avoided, and estate taxes are minimized. Physicians need a will in place as soon as they have children or begin to acquire significant assets. Most will also benefit from scheduling a visit with an estate planning attorney by the time they reach mid-career.