Minnesota residents may be interested in some of the major ways that estate and gift taxes can be avoided through proper estate planning. This can alleviate leaving a large tax burden on an estate, limiting the amount of wealth left to loved ones after death.
There are three tax exemptions that should be considered when constructing an estate plan. The first is the gift-tax exemption. This allows a person to give a large amount of assets away during their life while avoiding taxation on those gifts. Over a person’s lifetime, they can give a total of $5.43 million to others without owing federal gift taxes.
Federal tax law also allows for an estate-tax exemption of the same amount. Any bequest of property through the execution of the estate up to that $5.43 million would not be subject to estate taxes. Married couples may give away those amounts individually, effectively doubling the exemption for the couple combined.
If a person has a very large estate, however, they may run up against this ceiling. This is where another exemption, a $14,000 annual gift tax exclusion, comes in. Any gifts of up to $14,000 annually per person will not take away from this cumulative total. Gifts above this threshold will begin to chip away at the $5.43 million. This allows a strategy of giving annual gifts to relatives in order to reduce any later estate tax burden.
Understanding all of the issues that go into estate planning can be difficult without the assistance of an attorney. The attorney may be able to guide a person through the process of creating a comprehensive estate plan by drafting will and trust documents to try to ensure that taxes are minimized and that the client’s wishes are carried out after their death.