When people in Tennessee consider their plans for the future, they may want to think about ways to reduce estate tax liabilities. Most people want to pass on much of what they leave behind to their loved ones or even a favored charity without a substantial estate tax bill. The federal exemption from estate taxes has been raised significantly, but state taxes may function differently, and people may have assets beyond the federal exemption.
One of the most common ways to minimize estate tax liabilities is to remove property from the estate during a person’s life. An irrevocable trust is one option; as noted in the name, this type of trust cannot be canceled or changed once it has been put in place. In order for the estate tax exemption to be valid, the creator of the trust cannot continue to exercise control over the assets in the trust, including changing the beneficiary later on. There are options to safeguard assets that trust creators can use, including trust protectors or additional powers of appointment for some beneficiaries, but they cannot retain those powers themselves.
As a result, some people may hesitate to create this type of irrevocable trust. For these individuals, 529 plans may also serve as an option. Many people want to support future generations’ educational expenses through their estates, and 529 accounts can be created for many relatives, including grandchildren. With a 529 account, the amount is removed from the estate, but the creator can change the beneficiary. Of course, funds in a 529 plan must be used for educational purposes.
Reducing estate taxes is a significant priority for many who want to provide for their loved ones in the future. An estate planning attorney may help clients create a plan that meets their needs and maximizes support to their beneficiaries.