In addition to the federal government, many states impose taxes on the estates of wealthy people following their death. However, there are ways to get around these estate and inheritance taxes. One possible way is to relocate to a state like Nevada that has no such tax, but that may not be feasible or desirable for many people. Other methods could include making an outright gift or using a bypass trust as an estate planning tool designed for this purpose.
While the federal estate tax exemption is currently $5.43 million, the exemption amount in many states is far lower. At present, 18 states along with the District of Columbia have their own version of inheritance or estate taxes.
Another way people can diminish or avoid this tax is to take advantage of a gifting program. This is a simple and sensible way to ensure that recipients will quickly receive the money, even before the testator dies, as long as the amount is a certain percentage of the entire estate.
Employing a bypass or a credit shelter trust during estate planning is a third method whereby individuals are able to get around estate taxes. In fact, a couple whose estate is worth $6 million, for example, will have a zero estate tax liability if half of that money is put in a bypass trust after the first spouse passes away.
While many people think that they will never be burdened by federal or state estate taxes, the law is continuin to change. An estate planning attorney can often come up with creative solutions for clients that can help take future taxes into account.
Source: Forbes, “Three Surefire Moves To Beat State Death Taxes”, Ashlea Ebeling, Oct. 16, 2015