Estate Planning FAQs: Estate Planning Strategies for Minimizing Estate and Gift Taxes

Let’s face it and get it out of the way. We all are (unfortunately) destined to die. In fact, the number one cause of death is birth. Did you know that quote is attributed to several people, including American comedian and actor Robin Williams, American musician John Mellencamp, and American writer and philosopher Alan Watts (however, the original author of the quote is unknown)? Either way, it’s inevitable for you, us, and anyone else reading this post.

But, there’s good news and bad news. The bad news is, when you pass death’s best friend and sidekick (taxes, a/k/a the government) is coming for your stuff. The good news is, we can help minimize their take and help you to ensure that your family, loved ones, favorite pet, or favorite charity, are taken care of.

We know planning for estate planning is a daunting task, filled with apprehension, tough conversations, and bewildering legalese. However, we’ve set up this post to help you demystify some of the terminology and get a head start on strategies that can minimize your taxable estate (and share for the government).

What is estate planning?

Estate planning is the process of organizing and preparing for the distribution of a person's assets and property after their death. Estate planning typically involves creating a plan for the distribution of assets, naming beneficiaries, and minimizing the impact of taxes and other expenses on the estate. Estate planning may also include the creation of legal documents, such as a will, power of attorney, and healthcare directive, to ensure that a person's wishes are followed in the event they are unable to make decisions for themselves.

Why is estate planning important?

Estate planning helps ensure that a person's assets are distributed according to their wishes and minimizes the impact of taxes and other expenses on their estate. Estate planning also provides peace of mind, when handled in advance, and can help prevent disputes among family members or other beneficiaries.

In the absence of an estate plan, an individual passes away “intestate.” The intestacy process means the distribution of a person's assets may be determined by state laws, which may not align with their wishes.

Advanced estate planning allows individuals to control the distribution of their assets and ensure that their loved ones are provided for after their death. Additionally, estate planning can also help to reduce the administrative and financial burden on loved ones by clarifying the process for distributing assets and settling debts.

What about inter vivos planning? What does that mean?

Inter vivos planning, also known as lifetime planning, refers to the process of arranging one's affairs and assets during their lifetime rather than after their death. This includes “gift taxes” (taxes that occur on any gifts made while you are alive - yes that is a tax too!). This includes the creation of legal documents such as trusts, wills, and powers of attorney, which can be used to manage and distribute assets in a manner that is consistent with the individual's wishes, but also (and arguably more importantly) includes creating plans to reduce your taxable estate in general.

Inter vivos planning is often used as a means of avoiding the probate process and minimizing estate and gift taxes. This means we can work with you to help you transfer assets to love ones, trusts (even for your pets), or your favorite charities, during your life time, to strategically transfer your assets for minimal (and often literally zero) taxes. Our philosophy is to help you maximize the tax code (the Internal Revenue Code), to grant your wishes. You worked hard, and the government shouldn’t take your hard earned money (regardless of how big your estate is).

There are many tools to use for inter vivos planning and a great example is a trust (although, keep in mind that there are many different types of trusts - contact us if you have questions). Trusts, for example, can be established during an individual's lifetime and used to hold assets that will be distributed to beneficiaries after their death. By establishing a trust, the assets held within it can avoid probate and potentially reduce estate taxes.