Clinton Estate Planning Attorneys Helping Clients Preserve Their Wealth and Legacy in Clinton, MS
Putting together your estate plans is an important step for everyone, regardless of their income levels. One of the key benefits of having the right estate plans and tools in place is the opportunity to minimize the taxes your estate may owe as well as those your beneficiaries may be subject to once they receive their inheritance. Our attorneys go over a few aspects of how estate planning may be beneficial in reducing your tax liability and helping you preserve more of your assets.
How Can Estate Planning Help Minimize Taxes?
When you pass away, a large portion of your assets must go through probate, which is the legal process of gathering your assets, validating your will, and carrying out a series of tasks to wrap up your affairs and distribute all assets to their intended beneficiaries. However, before assets can be transferred, your estate will likely need to pay taxes and cover any pending debts you may have left behind. Without proper planning, your estate may end up having to pay a hefty tax bill, which may leave less for your beneficiaries to inherit.
While the majority of estates in the U.S. are not large enough to be subject to federal estate taxes, even smaller estates may benefit from having the right plans in place so as to reduce the amount of income tax that beneficiaries may end up paying upon receiving estate assets. For example, let’s suppose you have a life insurance policy. If you have a named beneficiary for that policy, that person may receive the money directly without paying taxes. However, if your policy happens to be payable to your estate, it may be counted as part of your gross estate and thus be subject to estate taxes.
Does Mississippi Have an Inheritance Tax?
There are 14 states in the U.S. in which estates of a certain size are subject to state-level inheritance tax in addition to federal estate tax. The state inheritance tax can be as high as 20% in some states. However, Mississippi does not have estate or inheritance taxes, but if you have assets located in another state that does have inheritance taxes (such as a vacation home, for example), you may end up paying taxes on that asset.
Large estates may be subject to federal estate taxes, regardless of whether they are required to pay state-level inheritance taxes or not. Estates worth more than 12.06 million dollars (as of 2022) may be required to pay federal estate taxes on the portion of the estate that surpasses the federal estate tax exemption amount. If you believe your estate falls in that bracket, estate planning strategies to reduce the size of your estate may prove beneficial in minimizing your tax liability.
Is a Trust a Good Tool to Reduce Taxes Owed by an Estate?
You may have heard that a trust can be an effective tool for minimizing or avoiding estate taxes, and it is true to a certain extent. However, in order for a trust to work in that manner, you need to make sure you are choosing the right type of trust and setting it up properly. Otherwise, it can become quite a headache for you and your beneficiaries.
There are many types of trust that can be used to reduce estate taxes. Some of them, like a Crummey trust, take advantage of the federal gift tax exclusion, allowing parents to make gifts for their children but controlling when the beneficiaries may access those funds. Another option is a generation-skipping trust, which allows you to give assets to anyone who is at least 37.5 years younger than you. If you believe a trust is a feasible option for your estate plans, it is important to consult an estate planning attorney to make sure you are choosing the right type of trust for your situation.
What Are the Other Benefits of Estate Planning?
Reducing your tax liability is one of many benefits you can obtain by having the right estate plans in place. Even the most basic estate planning documents such as wills can help you accomplish other important goals, such as having a way to communicate your wishes for how your assets should be divided among beneficiaries, and who should receive what after you pass away.
You can also include a document such as a living will to record your wishes for the type of healthcare you want to receive should you become incapacitated, providing a way for your loved ones to make decisions on your behalf. In addition, many clients prefer to set up their estate plans to keep the majority of their assets from going through probate. Whatever your estate planning goals may be, an estate planning attorney can guide you to make the right choices and use adequate strategies to meet your needs.
When Should I See an Estate Planning Attorney?
Planning for what should happen to your assets after you pass away may be an unpleasant topic for many people, but procrastinating on making your estate plans is a risky move that can not only cause undue hardships to your loved ones but also result in a hefty tax bill. Instead of leaving all your wealth to your loved ones, a large portion of it might end up going to the government. With the right estate plans in place, you can potentially avoid that and help preserve your legacy for the next generation. At Rundlett Law Firm, PLLC, our attorneys can help guide you at any stage of your estate planning process. Contact our Clinton, MS office by calling (601) 353-8504 and requesting an initial consultation to see how we can assist you.