One of the things that you and your estate planning advisor will need to prepare for is the probate process and the high legal fees it involves. Probate is the legal process that begins after a person’s death. The will is reviewed to determine its validity and authenticity, and the various steps are taken to administer the deceased estate. It can be a long, complicated process or a very quick and straightforward one, depending on the estate’s size, the provisions of the will and whether or not there are any disputes. The most significant worry associated with probate is its high legal and tax costs. However, with careful planning, these can be avoided.
How to avoid estate tax
In order to help your estate avoid high taxes, here are three steps you can take in your estate planning processes:
1. Give portions of your wealth away as gifts: You can reduce the tax burden on your estate by giving assets away as gifts during your lifetime, rather than bequeathing them in your will. This will reduce the net value of your estate and thus also lower the tax owed on it.
2. Set up an irrevocable life insurance trust: If you open an irrevocable trust for your life insurance policy, you essentially transfer ownership of it to someone else, which means that it will not form part of your estate and won’t be taxed.
3. Make charitable donations: You can also transfer part of your wealth to charity via a trust.
Is your second home tax deductible?
If you own two or more properties, the tax implications will need to be taken into account if they are included in your estate. As a general rule, principal residences are tax-deductible, but those used to earn income will be subject to applicable taxes. The sale of your properties will also make you liable for capital gains tax except in the case of those that have served as principal residences throughout the period of your ownership. All of these considerations will have a bearing on your estate’s tax position.
Nour Private Wealth Management’s estate planning experts can help you plan your estate in such a way as to ensure that your heirs and executors can avoid or reduce the probate process’s high legal fees. Contact us for more information.