by Steve20

Created on: November 19, 2009

Helpful Information about Estate Taxes

To save money on estate taxes, you might want to consider one of the following financial plans. No matter what creative strategy you use, you must consult with your tax adviser and your attorney to find out which plan will work will work best in your situation.

Give All Your Money to Your Spouse

A creative estate planning strategy-and probably the simplest to do-is to title most of your assets in joint tenancy with rights of survivorship.

This means that everything you own automatically transfers to the survivor (usually a spouse, although it can be another person you designate). You do not have to go through probate, and you can take advantage of the unlimited marital deduction. However, if you both die at the same time, chances are the estate will have to pay an enormous amount in estate taxes. Make sure you review this with your attorney because this may not be a good option for you, depending upon the value of your assets.

Give $600,000 to Your Kids and the Rest to Your Spouse

You can still take advantage of the unlimited marital deduction using this strategy and reduce your taxable estate when your spouse dies. Here's how it works: if your estate is worth $1 million and you give $600,000 to your kids, that $600,000 is not subject to estate taxes. The remaining $400,000 goes to your spouse, which is also exempt from estate taxes because of the unlimited marital deduction. But it is $600,000 less that would be subject to estate tax when he or she dies.

The A-B Trust

A-B trust allows married couples and their families to save up to $1.2 million on estate taxes. First, every person gets a $600,000 exemption from estate taxes, which is Unified Tax Credit. When you die, your estate is exempt from taxes of up to $600,000 is subject to estate taxes.

Here is a way to remember how this works. The A trust stands for alive-money that goes directly to the surviving spouse. The B trust stands for buried-money buried in a trust at the death of the first spouse, held in the trust until the second spouse dies, and then dispersed to children and grandchildren.

An Irrevocable Trust

Concerned about giving money to children or grandchildren who might spend it foolishly, but still fretting over your estate tax problems? You can set up as many of these as you want, depending on the number of beneficiaries you name. Each year you make your $10,000 gift to each trust. The trust will dictate when your heirs can receive the income or assets from the trust.

The Family Limited Partnership

Considered as a thorn in the government's side, this family limited partnership is still making its way through the legal system. It's a simple idea where a legal family limited partnership holds assets outside the taxable estate. One of the spouses, acting as general partner, holds 10 percent of the assets of the partnership. The remaining 90 percent of the assets are divided among the limited partners, who initially are husband and wife.

An Irrevocable Life Insurance Trust

It is a wee bit complicated, but here goes. By using the $10,000 annual gift exemption you are allowed, you use the gift money to pay the premiums on an insurance policy every year. Because the death benefits from a life insurance policy are considered part of the estate of the deceased, estate taxes will be owed.

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