Estate taxes can eat into your assets and seriously diminish your heirs' inheritance if you aren't careful. Here are a few legal ways to minimize estate taxes during estate planning:
Family Limited Partnership
One option is to create a family limited partnership, which is a type of an arrangement in which members of a family own a business exclusively without the involvement of outsiders. If you want to use it as an estate planning tool to minimize taxes, then you can create a family limited partnership business and include your heirs as co-owners of the business. You then make give them bigger shares of the business and only retain a small portion of it. In such an arrangement, the assets of the partnership itself inst taxable; individual owners of the partnership report their incomes and deductions when filing their individual tax returns.
Members of a family are allowed to gift each other without incurring tax as long as they don't exceed a preset limit every year. Therefore, you can give your kids the preset amount of money or number of assets whose value don't exceed the legal limit each year for several years. This can add up to considerable untaxed assets when spread over several decades.
Life Insurance Trust
An irrevocable life insurance trust is like regular life insurance coverage, but the difference is that you create it for another person (your beneficiaries) and not for yourself. Once you create the irrevocable life insurance trust, you deposit into it the amount of money or assets whose values are equal to the amount of life insurance trusts the policy demands. The advantage here is that life insurance proceeds are generally not taxable.
.Actual Use Real Estate Valuation
In order to maximize tax collection and deal with tax avoiders, the IRS often taxes real estate properties for their highest and best values. This means that during tax determination, the value of a real estate property is taken as the highest possible value it can attain if it is put to its best use. This means if you have a private farm (maybe you grow your own food) in a commercial area, it may be taxed as a commercial property. This will be unfair to you since commercial properties are valuable than typical private farms, and you will end up paying higher taxes. However, the same federal government allows you to challenge the valuation and use the actual use value of the real estate during taxation. You will want to consider hiring an estate planning attorney from someone like Abom & Kutulakis LLP to ensure everything is filed correctly.