Wealth and a network of loved ones can each take a lifetime to build, but the government can drastically affect both in a matter of seconds after you die. If you don’t plan ahead for the potential impact of estate taxes, the people and causes you care about may end up paying for your oversight.
The greater the overall value of your estate, the greater your risk for estate taxes. Both the federal government and the state of Illinois will take a cut of your estate, potentially reducing the benefit to your family and loved ones, unless you take action now to protect your legacy from a second round of taxation.
After all, you have already paid tax on your income and assets during your lifetime. You shouldn’t have to worry about your family members and loved ones paying taxes on it again after you die. With a little bit of planning, you can minimize your tax worries and risks.
Those with estates worth $40,000 USD or more should plan for taxes
Although the federal government has increased the minimum estate value for estate taxes, Illinois still has a relatively low threshold for state estate taxes. Those with an estate valued at only $40,000 may be subject to taxation at the state level. The rate of tax increases with the overall value of the estate, up to 16% for estates worth $10,000,000 or more.
Additionally, those who meet the federal threshold of $11.4 million will also have an obligation to pay federal estate taxes, which also increase in amount with the value of the estate. Clearly, that is a significant burden on your family. However, it is possible to reduce or even eliminate that tax burden.
The creation of a trust can help you avoid estate tax
Transferring assets into a trust now can be a very wise estate planning move. Not only do you get to reap the immediate benefit of knowing that your loved ones will have access to those assets without waiting for probate court, but you will also have greater control over who uses those assets and for what.
More importantly, a trust is its own legal entity, which means that you reduce the overall value of your estate by whatever you place in the trust. Moving your home or substantial financial assets into a trust now can be a solution for substantially reducing your estate tax vulnerability.
Planned asset distribution can also help
You probably intended to leave much of your estate to family members and loved ones. Charitable giving may also be part of your intended legacy. You can arrange to give gifts to family members and charities that you support each year in order to reduce the total value of your estate over time.
As an added bonus, such giving can potentially reduce the risk for other taxes if you gift less than the tax cut off for gifts to each organization or person.