One of the primary goals of estate planning is to minimize the effect of taxes. Taxes can significantly reduce the amount of your estate that you can pass to your heirs.
Estate planning can help ensure that your heirs receive as much of your estate as possible.
Federal estate taxes
Lousiana does not currently have state estate taxes. Three types of federal transfer taxes may impact your estate:
- Estate tax
- Generation-skipping transfer tax
- Gift tax
U.S. law currently allows estate holders to transfer $12.06 million of their estates without incurring the federal estate tax. Additionally, they can transfer an unlimited amount to their spouses tax-free.
The federal gift tax applies if you make gifts during your lifetime that exceed the exemption amount. The generation-skipping transfer tax applies when you transfer assets to a person who is two or more generations removed from you.
Why these taxes matter
You can use techniques, such as taking advantage of the annual gift tax exemption to transfer assets while you are alive, to reduce the total amount of taxes your estate must pay. Reducing the tax burden of your estate allows you to pass more of your assets on to your heirs. However, you must take care to avoid exceeding the exemption limits or subjecting your estate to additional taxes by transferring assets to non-exempt parties.
Estate planning is an important tool for maximizing the amount of your wealth that you can transfer to your heirs and avoiding unnecessary tax burdens. The earlier you start the planning process, the more options you have.