While taxes are an inevitable part of life in Missouri, they do not have to follow a person into death in the form of an estate tax. A little careful planning helps lower estate tax beneficiaries incur after a loved one passes.
SmartAsset breaks down several strategies designed to reduce estate tax. Careful planning better ensures heirs receive everything they need and deserve.
Irrevocable life insurance trust
Those with a life insurance plan reduce the financial burden left after they pass. That said, insurance proceeds could face taxation after the policyholder dies. Setting up an irrevocable life insurance trust sidesteps estate tax by making a beneficiary the new trust owner. It is better to establish such a trust sooner rather than later.
Giving wealth away in the form of a gift is another way to sidestep estate tax. There are limits to how much a person can give each year before gift tax kicks in; asking an accountant or financial planner about the latest limits is a good idea.
Estate tax exemptions
Everyone has a lifetime estate tax exemption, notes U.S. News & World Report. A person can use this exemption while alive, rather than waiting until after death. It is a good idea to use this strategy for appreciating assets.
Family limited partnership
There could be real estate property or a family business a person wishes to pass on to heirs. In such situations, creating a family limited partnership makes the most sense to avoid estate tax. The person setting up the partnership acts as the general partner, who retains all the power, and names beneficiaries as limited partners.
For times when estate taxes are inevitable, having additional life insurance helps. Any part of the policy set aside specifically for estate tax is best put into an irrevocable trust.