Reduce my Federal Estate Taxes to Zero?Share this post
Yes, the estate tax is a voluntary tax! You can choose to pay it by not planning ahead, or you can reduce or even eliminate it with planning. The easiest and simplest way to eliminate the Federal estate taxes at death is to not allow your estate to be valued more than the Federal Estate Tax exemption.
What Is the 2022 Estate Tax Exemption?
The federal estate tax exemption—the amount below which your estate is not subject to taxes when you die—is going up again for 2022. That’s actually normal, because the amount is adjusted each year for inflation.
On the other hand, if your estate considerably exceeds the Federal Estate Tax exemption, then there are several steps you can take to reduce or eliminate the estate tax altogether. The simplest step is to leave your excess estate (over the Federal Estate Tax exemption) to a qualified charity. This may be suitable if you’re charitably inclined. If not, this will take property away from your heirs who would have received at least part of that amount after paying the estate tax.
Other possible plans to avoid or eliminate estate taxes and provide flexibility in overall planning include: revocable trusts with bypass trusts; property transfers during life to discounted entities; charitable trusts established during life and/or at death; and life insurance policies to pay the taxes on behalf of the estate. It is beyond the scope of this book to discuss the details of these strategies, but your advisor will be happy to discuss them with you.
Unfortunately, the government requires a taxpayer to jump through certain legal hoops and undertake some fairly sophisticated planning to avoid or eliminate estate taxes, but it can be done.