When an individual dies, their assets can be subject to estate taxes. If you are a wealthy individual with a large estate, you will be subject to estate taxes. Therefore, knowing how to reduce estate taxes is crucial if you live in Maryland and are considering estate planning. Estate taxes can significantly impact how your final wishes are carried out upon death. Please continue reading to learn how to minimize your estate taxes and how an adept Montgomery County Estate Planning Attorney can assist you today.
What is estate tax?
Firstly, it’s essential to understand that your state will include all your assets upon death, from properties and vehicles to stocks and retirement accounts. The estate tax is a tax that is imposed on an individual’s estate after they have passed away but before it is distributed to their designated beneficiaries. The Internal Revenue Service (IRS) defines the estate tax as a “tax on the right to transfer property at death.” This tax is also commonly referred to as a “death tax.” Essentially, the federal government imposes this tax on the estates of wealthy people, which are deducted before the funds are disbursed to their heirs. It’s crucial to distinguish the estate tax from the inheritance tax, a separate tax that some states impose on the recipients of an inheritance after it has been transferred.
How can I minimize estate taxes in Maryland?
When you decide to create an estate plan, it’s imperative to enlist the legal assistance of a qualified attorney who can help you determine the best options and strategies to accomplish your overall goals. Fortunately, several estate planning strategies can be used to reduce or even avoid your estate tax liability in Maryland. One of the primary ways you can safeguard your assets from estate taxes is by transferring your assets to someone else. This can be accomplished through marital transfers, gifts to family members, gifts to minors, and charitable donations.
Moreover, another method you can utilize while estate planning to avoid estate taxes is setting up a trust. Married couples can establish a marital trust A-B, or QTIP, as they allow a surviving spouse to use that personal estate tax exemption to the fullest extent. You can also opt for setting up an irrevocable life insurance trust, as it has various tax benefits. You cannot change an irrevocable trust once it’s created. When an individual dies, the trust will inherit the life insurance proceeds or any death benefits, not the estate. This means the assets distributed through the trust are not subject to estate taxes.
Furthermore, you can turn to a qualified personal residence trust, which lets married couples put their property in a trust for their beneficiaries while continuing to reside in the home for some time. Once the time specified in the trust ends, the trust passes to the beneficiaries. Finally, you can consider creating a charitable trust. Charitable trusts will result in tax deductions as the trust passes to the charitable organization upon a donor’s death.
Regarding estate planning, there are several ways to reduce estate taxes. At JDKatz, we have a well-equipped legal team to assist clients in utilizing different strategies to minimize and avoid estate taxes. We aim to ensure your loved ones receive the inheritance you intend to leave them. For more information on estate taxes, please don’t hesitate to contact us today.