4 Ways to Reduce the Size of Your Taxable Estate

Lowering the size of your taxable estate could potentially help you get under the estate tax exemption limit whenever you pass away. Here are some of the best ways to reduce the size of your taxable estate.

1. Spend Your Money

If you want to reduce the size of your estate, one of the best ways to do so is by spending your money. While you will not be able to know exactly how much money you will need during retirement, you should be able to spend enough to get you under the estate tax exemption. You want to be able to enjoy your money while you are still alive. Therefore, in the habit of spending as much as you can if you want to reduce the size of your taxable estate.

2. Inter Vivos Gift Giving

You should also utilize inter vivos gift giving as often as you can. This simply means that you are going to give gifts while you are still alive instead of through your will or trust whenever you die. Giving gifts is a great way to help others out financially and it can significantly reduce your taxable estate at the same time. According to current IRS rules, you can give as much as $13,000 every year to an individual.

If you are married, you can combine both of your exemptions and give as much as $26,000 per year. You can also give as much is you want if you are paying for medical expenses or college tuition for someone else. Giving to a charitable organization is another good way to use your money. You can deduct as much as 50% of your annual income if you give that much to a charity.

3. Irrevocable Trust

You might also want to consider utilizing an irrevocable trust. This is an arrangement that you can set up as part of your estate planning. An irrevocable trust allows you to transfer his many assets as you want into it. Since the trust is irrevocable, no one will have to pay estate taxes on the assets that are in this trust. When you transfer the assets into the trust, you are technically not the owner of them anymore. You are giving in to a trustee in order to watch over them for you. You will be able to specify when the assets in the trust should be transferred to your beneficiaries. You can also set the trust up so that you will be able to have access to the assets within it while you are still alive. If the assets are making income, you can still receive this income.

4. Transfer Business Interest

If you are a business owner, you might want to consider transferring part of your business ownership over to one of your heirs. You could utilize a family partnership for this process. You will be able to reduce your part of the ownership in the business while increasing your beneficiary's ownership at the same time.


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