Reduce Estate Taxes with Strategic Estate Planning

People with sizable assets to pass down to loved ones often worry about the effect of estate taxes on their family’s wealth. While this is a reasonable concern, implementing intelligent estate planning strategies can help families preserve and protect wealth to minimize estate taxes and gain peace of mind. 

Why You Need Our Law Firm to Help You Reduce Taxes Through Estate Planning

Strategic estate planning can help you pass assets to family members without incurring unnecessary taxes that decrease the value of your estate. For years, Arizona individuals and families have trusted Pennington Law, PLLC to recommend the right strategies to save money and avoid tax problems.  

We take a comprehensive approach to estate planning. There is no one-size-fits-all strategy to reduce estate taxes because everyone’s situation is unique. That’s why we craft estate plans tailored to each client’s circumstances and make updates as tax laws change. 

Our estate planning attorneys can put you on the path to success by: 

Not sure if you need an estate planning lawyer? Everyone has assets worth protecting. Pennington Law, PLLC assists clients from various backgrounds, including ordinary families, active-duty service members, small business owners, and high-net-worth individuals. Here’s what one client has to say about us: 

“If you’re thinking responsibly and looking to appoint premier counsel and/or representation for your family’s estate rather than a member of the family or a family friend, look no further than Pennington Law! Andre Pennington and his experienced legal team of trusted advisors are more than capable of handling every major and minor detail of your estate, financial, and legacy planning! To hire legal counsel for your precious estate is an applaudable thing, but being responsible to hire a team of legal counsel that is a family for families for your trusted estate is a remarkable thing!”

To learn more about how we can help you, call or contact us now for a free consultation. 

What You Need to Know About Estate Taxes and Exemptions

When you pass away and your assets pass to heirs and beneficiaries, your estate may become liable for taxes. Although Arizona does not impose an estate tax, the Internal Revenue Service (IRS) taxes large estates worth tens of millions or more. However, federal law provides substantial exemptions that can significantly reduce the taxable value of a large estate. Furthermore, a surviving spouse can inherit the unused portion of their deceased spouse’s exemption through a timely exemption on the deceased spouse’s estate tax return. 

Strategies to Reduce Estate Taxes Before You Pass

Individuals and families with large estates may pursue various estate planning strategies to minimize taxes when loved ones pass away. Common estate tax reduction strategies include:

  • Irrevocable trusts, which remove assets from a grantor’s estate
  • Annual gift tax exclusions, which allow individuals to gift money up to a certain amount per year tax-free and spend down the value of their estate
  • Lifetime gift tax exemptions, which utilize the federal estate gift tax exemption
  • Generation-skipping transfer tax exemptions
  • Inheritance of spouses’ unused estate tax exemptions

Lifetime Gifting Strategies

Individuals who make gifts to family members or other loved ones must pay gift taxes by default. However, you may avoid gift tax liability by taking advantage of annual and lifetime gift tax exemptions. 

Each year, a person may give an individual up to a set amount (adjusted periodically by the IRS) without triggering the gift tax. Although gift amounts above the annual gift tax exclusion would trigger federal gift tax liability, a person can also rely on their lifetime gift tax exclusion to avoid gift taxes. The lifetime gift tax exemption is the total amount of money or assets you are allowed to give away before you have to pay a gift tax on it. Once you gift above the allowable amount, you may owe taxes. 

Because of these complex tax laws, it’s wise to have an experienced estate planning attorney and financial advisor review your estate plan to ensure it complies with current tax law. 

How Trusts Can Help Reduce Estate Taxes

Individuals and families frequently use irrevocable trusts as an estate planning tool to reduce estate taxes. Some of the most common types of trusts used to minimize tax liabilities include:

  • Irrevocable life insurance trust – Holds the grantor’s life insurance policy and prevents the proceeds of the policy from counting towards their estate
  • Qualified personal residence trust – Removes the value of a primary residence from a person’s estate and facilitates its transfer to loved ones after a term of years or the person’s death
  • Grantor-retained annuity trust (GRAT) – Removes the grantor’s assets according to the terms of the trust, allowing them to receive regular income from the trust and for the appreciated assets to pass to heirs tax-free 
  • Charitable remainder trust – Allows grantors to make charitable donations to causes they care about while receiving a tax break and still generating income

Maximizing Marital Deductions and Portability

Federal law simplifies the process of combining estate tax exemptions for married couples. When one spouse passes away, the surviving spouse can elect to “inherit” the unused portion of the deceased spouse’s exemption. With careful estate planning, married couples can combine their exemptions, potentially doubling the exemption when family wealth finally passes to children or grandchildren after their deaths. 

How Family Limited Partnerships Could Provide Estate Tax Savings

Family limited partnerships (FLPs) may be an effective estate planning option to help business owners (who are also family members) mitigate estate taxes. In these arrangements, parents can place assets into the partnership to reduce the value of their estates and minimize or eliminate estate tax liabilities. Furthermore, FLPs can manage and protect high-value or complex assets that generate income and distribute that income to family members, preserving generational wealth. 

Our Estate Planning Lawyers Can Help You Reduce Estate Taxes

You deserve to feel confident about the security of your assets. That peace of mind will come from developing a comprehensive estate plan that accounts for every contingency, including how taxes can affect your estate’s value. At Pennington Law, PLLC, we offer solid solutions so clients know their affairs are in order. Contact us today for a free consultation with one of our skilled estate planning attorneys.