Everyone focuses on saving and maintaining wealth while we they are living, but often forget to plan the same for their beneficiaries. What a shame it would be for your beneficiaries to receive less financial support simply because you failed to plan properly. There are proven ways to avoid estate taxes in Massachusetts. Below is a quick overview of each.
Gifts Made Annually
If you would like to reduce your assets gradually over time, you can gift them to family members. The IRS recognizes that people may try to gift funds to avoid paying estate taxes, so they set an annual limit on the amount that can be gifted tax-free. This is why your gifting strategy must take place over time.
Individuals may gift funds up to $14,000 per person, per year without taxes. A husband and wife may gift separately to the same person, so a couple can gift $28,000 combined. Let’s run through a scenario. Assume a couple has 3 married children. Gifts can be made to each child and his/her spouse. In one year, that can total $168,000. If there are any grandchildren, the same can be done for them, further extending the amount of funds that can be gifted.
By making gifts to family members over time, the value of your estate will be reduced. If remaining assets fall under the one million dollar threshold, then you avoid estate taxes in Massachusetts.
Charitable donations have no annual limit. They can reduce the value of your estate and be used as a taxable deduction. Most individuals with family would option to pass on their estate to their family rather than donation everything to charity, but it’s still important to mention charitable donations as a way to avoid estate taxes in Massachusetts.
The best way to protect your assets is to create trusts. Depending on the total value of your estate and whether you are married, you and your spouse can create one or multiple types of trusts. Each may individually fall below the million dollar threshold, allowing you to avoid estate taxes in Massachusetts. Should one spouse die, trust funds can still benefit the surviving spouse without causing his/her own estate to exceed the threshold (if structured properly).
There are too many types of trusts to cover them in detail here. However, we will cover those in additional blog posts. What is important to know is that trusts are a great option to consider. Selecting the right trust or combination of trusts truly depends on your unique circumstances. To understand what options might work best for you, schedule a consultation with our Massachusetts estate planning attorneys.