An Early Start Reduces Estate Tax Liability

Procrastination certainly does not pay off when it comes to estate planning. By starting early, you will be able to protect the assets that you have worked so hard for over your lifetime. Death is an unpredictable occurrence which makes it important to have your affairs in order while you are still alive and well.

The majority of estates are required to undergo the probate process. Many people are concerned with this matter because of the associated time delay in the distribution of property and all of the related expenses. This is why many individuals opt to allocate some of their major assets to their heirs prior to their death. Essentially, if the asset is not a part of the estate at the time of probate, it will not be subject to estate taxes.

Lifetime transfers can take on the form of tax-free gifts. Property can also be transferred to the heir prior to death. These practices help alleviate some of the tax burden that would otherwise be imposed upon them and the estate. If property is transferred during your lifetime, your heir will be able to eliminate the federal estate taxes as well as the inheritance taxes. According to the IRS, any applicable gift tax that would be owed above and beyond the tax-free threshold is generally paid by the donor. This means that your family does not have to come out of pocket to receive your assets.

Many people also form corporations in order to shelter their assets from tax implications. For example, if a company owns your property then your heirs can be named as the operating officers and/or owners. Your death will not affect the continued operation of the business, nor the value of the assets that were transferred inside of it, as a company's existence is perpetual.

Having a life insurance policy that is owned by your trust, also keeps your assets out of the estate and out of a probate proceeding. Your policy value will be distributed to the named beneficiary and will not become subject to the probate process. This in turn reduces the tax implications that would ordinarily take place.

Implementing the proper estate planning techniques early on allows you to keep the value of your estate intact. Understanding all of the implications of estate taxes can help you integrate viable methods to reduce the largest expense that your estate will face upon your death.

Sources
Internal Revenue Service
http://www.irs.gov