Strategies to reduce taxes in estate planning

On Behalf of | Nov 23, 2015 | Estate Planning

Individuals in Nevada who are working on an estate plan may be wondering how to protect their assets from taxes. Even the beneficiaries of those whose estates fall well under the federal exemption limit of $5.43 million may face taxes on assets like second homes and retirement accounts. However, there are strategies that can prevent or reduce these taxes.

Drawing up a will is a basic step that many people have not taken. Without a will, an estate will be divided in probate, which may be costly to heirs. Making sure beneficiaries are correctly named on life insurance, retirement accounts and similar assets is also important as these assets are not distributed with a will.

Individuals with large estates or those who are concerned about how responsible their beneficiaries will be with their money may want to look into setting up a trust. A trust can distribute a little bit of money at a time or tie it to an event like reaching a certain age or educational achievement. Many individuals may not know that there are tax penalties on traditional IRAs and 401(k)s, but these can be converted into Roth IRAs to provide tax-free distributions. Finally, giving away assets as gifts can reduce the size of an estate.

Many people find conversations about estate plans difficult. Often, they don’t want to deal with the subject and their families don’t want to talk about it. However, better communication about estate planning can make it more likely that an individual’s wishes will be carried out after death. Furthermore, the estate plan is a document that should be returned to and updated as changes happen within the family and as tax and other laws change.