Evaluating your estate tax strategy

On Behalf of | Nov 11, 2022 | Estate Planning |

Over the course of your life in Alabama, you may have accumulated significant assets. It’s natural to want to pass those assets along to family, charity or perhaps some combination of the two.

It’s important to keep in mind that estate taxes can potentially take a big bite out of your assets at the time of your passing, reducing what you pass along by a considerable amount. Any good estate planning strategy takes into account the estate tax, as well as ways to minimize its impact.

Understanding the estate tax threshold

Estates are exempt up to a certain dollar amount, and then any assets valued above that threshold are subject to the estate tax. However, the entire process becomes tricky because the exemption level is set to change in the near future.

As of today, the Tax Cuts and Jobs Act is scheduled to sunset in 2026, causing the threshold to revert to around $5 million. But it’s entirely possible for future legislation to alter that figure at some point.

The uncertainty surrounding the specifics of the estate tax thresholds is one reason why it’s advisable to consult an estate planning professional for counsel.

Minimizing the estate tax

Two of the most common ways to navigate the estate tax are to either set up a trust or to give money during your lifetime within tax-exempt levels.

There is a wide range of possible trust options, all of which offer certain estate tax advantages. Choosing the right trust is essential, and that choice will hinge on the scope and nature of your assets.

The government offers an annual exclusion limit for gifts to others. This means that you can shift your assets on a yearly basis, reducing your eventual estate tax burden.

This strategy is especially effective if you have a large number of heirs, as you can easily move hundreds of thousands of dollars per year.