You worked hard to build up your assets over the course of your entire life, and you want as much as possible of that legacy to make it into the hands of your family and friends without the government taking an inordinate bite out of it first. That can seem easier said than done, but if you leverage the correct estate planning tools, it is possible.
Understanding the Role of Trusts
Trusts are a fundamental tool in estate planning. The many different types of trusts available can offer considerable flexibility and privacy while also providing significant tax advantages. By placing assets into a trust, you can reduce estate taxes and possibly avoid probate.
According to Illinois state law, assets held in certain types of trusts may be exempt from the probate process, thereby speeding up the distribution of assets to beneficiaries and reducing associated fees and taxes. An attorney with experience in the tax implications of strategic estate planning can help you choose the correct type of trust for your assets.
Strategic Gifting to Reduce the Size of your Taxable Estate
Another tried and true strategy for minimizing estate taxes is through gifting. Since you already know who you want your beneficiaries to be, you can begin the process of distributing assets before your death, thus leaving less in your estate for the tax man to dip into. By gifting assets regularly year after year, you can substantially reduce the size of your estate and the corresponding tax liability.
In 2024, the federal gift tax exemption increased to $18,000 per year. This is fantastic news, as it means that you have the option of transferring up to $18,000 in assets each year to an individual without incurring a gift tax.
Paying for medical expenses or tuition directly on behalf of someone else is also exempt from the federal gift tax. Strategic gifting not only helps in reducing the size of your taxable estate upon death, but it has the added benefit of allowing you to enjoy seeing the people you care about benefit from your generosity during your lifetime.
Leveraging Illinois State Tax Laws
It’s also vital to consider state-specific tax laws. Illinois residents ought to know how state tax credits and deductions can lead to significant tax savings. For example, Illinois offers a property tax credit for those who own property within the state. A tax attorney can help you to make sure that you’re fully utilizing all of the tax credits available to you based on the assets you own.
By integrating these key tools into your estate plan, you can effectively minimize the portion of your estate that you will lose to taxes and fees, ensuring that more of your assets reach the pockets of your loved ones.