If you are looking for ways to learn how to safeguard your inheritance for your loved ones, Protect Wealth Academy offers training on how you can protect your assets and reduce taxes. In this article, we’ll share four ways you can protect your inheritance.
Select An Alternative Valuation Date
Most inheritance values are determined on the date of death. However, if your inheritance is worth more than $11.7 million (for the year 2021), it may be federally taxed and the estate will significantly decrease in value six months after the deceased’s date of death. Hence, to save your beneficiaries from tax liabilities, it may be wise to select an alternative valuation date. This must be done by the executor of the estate within the year that tax returns are due.
It is important to note that the alternative valuation date must be applied to all assets under that estate. If there are other assets under that estate that will not decrease in value six months from the date of death, you are still required to use the value as determined on that date. This may result in a decrease in the value of the inheritance. Hence, an alternative valuation is only beneficial if it will decrease the gross value of the estate and the liability of estate tax – resulting in a larger inheritance. Once your executor has chosen an alternative valuation date, it cannot be changed.
Set Up A Trust Account
It may be wise to set up a trust account in order to allow assets to be passed to beneficiaries without having to first go through probate.
You may set up a revocable trust, in which case the grantor is allowed to take out assets when necessary, or an irrevocable trust which is bound up with all associated assets until the death of the grantor. An irrevocable trust is the best option for grantors of large estates wishing to reduce tax liabilities, but do take note that once it has been set up, it cannot be changed! All assets put into the trust will become the property of that trust and will no longer be considered part of your estate. This thereby decreases the estate’s tax liability.
Strategize Distributions From Your Retirement Account
Inherited retirement assets are taxable only after they’ve been distributed. However, all distributions can be taxed if they have been carelessly planned. By converting your IRAs to Roth IRAs, your beneficiaries will be protected from tax liabilities and they will be able to withdraw funds at their own pace instead of adhering to the Required Minimum Distributions. However, be careful when making these conversions – making too many conversions simultaneously may trigger your own tax liabilities, and put you in a higher tax bracket.
Gift Your Money
You can receive tax deductions and avoid taxable gains on properties that have appreciated in value by donating to a charitable organization! It may also be wise to give annual amounts to your beneficiaries while you’re still alive, and sums of up to $16,000 (as of 2022) are not subjected to gift taxes. This will reduce the size of your estate, which can allow you to avoid taxes. Consult an estate planning professional today to ensure you are updated on constantly changing estate tax laws in order for you to plan your inheritance with confidence and security!
