For anyone with significant assets, estate planning and wealth management go hand-in-hand. The right strategies now will prevent unnecessary taxes both now and in the future. What should your goal be for any tax strategy in your financial and estate planning? Here are the three key areas to focus on.
1. Minimizing Taxes Now
You work hard for your money, so you don't want to end up giving more of to Uncle Sam than is necessary. Doing so helps your estate in the long term because it means more will be available for you and for your heirs.
There are a variety of methods for legitimately minimizing your yearly taxes. You might utilize trusts, for instance, which create a separate entity for ownership of assets. However, the wrong trust entity would fail to achieve this goal. In addition to trusts, tax strategies include loss harvesting, timing income, maximizing deductions, the creation of business entities, and contributing to the right retirement accounts.
2. Minimizing Estate Taxes
What you don't use during your lifetime becomes your estate when you pass away. Therefore, good tax planning now helps bolster and protect your estate for future heirs. Irrevocable trusts and similar vehicles help ensure that the estate doesn't meet thresholds to be subject to taxes. You might also avoid tax thresholds by utilizing the annual gift tax exemption and making the most of spousal deductions.
3. Minimizing Taxes for Heirs
Finally, don't forget to think about how taxes may affect your heirs long after they receive their inheritances. While heirs don't pay inheritance or estate taxes when receiving assets, they will be subject to taxation later on. If you give an heir an asset that will appreciate, they will be subject to taxes when they eventually sell it. This might result in uneven proceeds among heirs as well as much larger taxes down the road.
An experienced financial planner can help you understand the long-term tax issues involved in any gift or inheritance. You might choose, for instance, to donate or sell an appreciable asset yourself and instead give a non-appreciating amount to heirs instead.
Tax planning, estate planning, and management of your wealth now all go together. The more you understand how to minimize taxes for yourself and your future heirs, the more useful your money will be. Learn more about strategies you have available by meeting with a wealth management planning specialist today.
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