Navigating capital gains tax on your estate after your passing

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Carl S. Goode |

Capital gains tax poses a significant consideration in Louisiana estate planning. It is a tax levied on the growth in value of assets—like stocks, bonds and property—between when you buy them and when you sell them.

Employing strategies to limit capital gains tax will safeguard your estate, helping your heirs avoid unexpected tax bills after your passing.

Benefit from the ‘step-up in basis’

The United States tax code provides a provision known as the ‘step-up in basis.’ This provision readjusts the value of the assets to the market value at the time of your passing, not the original purchase price. If your heirs sell the assets immediately, the ‘step-up in basis’ can stop capital gains tax as no ‘gain’ has occurred since your passing.

Make gifts while still alive

Gifting assets while you are still alive is another method to consider. The recipient of a gift takes on the original cost basis and holding period of the asset. Although this does not eliminate capital gains tax, gifting can reduce the size of your estate, potentially lowering estate tax obligations.

Use tax-advantaged accounts

Investing in tax-advantaged accounts such as Roth IRAs or 401(k)s offers a useful strategy. These accounts grow tax-free, and your heirs will not have to pay capital gains tax on withdrawals made from these accounts.

Invest in life insurance

Life insurance benefits typically remain free from capital gains tax. By purchasing a life insurance policy, you can provide your heirs with a tax-free sum upon your death. They could use this amount to offset potential taxes on other parts of your estate.

Create a trust

In Louisiana, creating a trust can be another way to manage potential capital gains tax. A trust can bypass the probate process and provide tax benefits, depending on its structure.

Through careful planning, you can significantly reduce the impact of capital gains tax on your Louisiana estate after your passing. Such foresight ensures that your heirs can inherit the greatest amount possible from your estate, protecting your legacy for future generations.

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