How to minimize Inheritance taxes

Question

Our family is looking to Inheritance a large real estate portfolio what is the best way to minimize taxes for both parties? How not to lose so much to government?

Grigory Pekarsky · Answer

Inheritance taxes are a major issue for people who have been lucky enough to accumulate some wealth over the years. In order to minimize these taxes, it is important to make sure that all of your assets are properly documented and organized so that you can determine what would be best for your heirs. By doing this, you will ensure that they don't end up paying more in inheritance tax than they need to because of an improper distribution of funds.

It is crucial to make the distinction between your taxable estate and your net worth. Your net worth is simply what you are worth at this point in time, whereas your taxable estate is everything that you own (assets) minus any debts (liabilities). The latter number must be subtracted from $5,340,000 for married couples or individuals if they want to figure out how much inheritance tax will need to be paid by their heirs. For example, if an individual's net worth was $10 million but they had accumulated $15 million of liabilities during their lifetime (that needed to be subtracted), they would only have a taxable estate of $5 million which could pass along free of any federal taxation.

Ashish Acharya · Answer

Yes, it is complicated but looks like you have an attorney taking care of these so don't be too concerned. Just ask him to explain what's going on.

Christian Stoecklein · Answer

@Jason Holloway a lot of high net worth individuals are doing planning now since the $11M  exemption is only in place till 2025 and then reduces to $5M.  Keep in Mind though gifting is carry over basis vs step up when inherited. Lots of options and planning but get good legal and tax advisors. Good luck!

Christian

Jason Holloway · Answer

@Ashish Acharya

Properties are all in the trust

The tax attorney is talking about a bypass trust but only 3 million goes into that ? If some laws change in the near future

The other 4 million are dissolved?

Very confusing and complicated

What do the wealth?

Ashish Acharya · Answer

You don't owe taxes when you inherit the property, but there are other tax issues you need to manage such as step-up of the basis.

The deceased taxpayer might have to pay estate taxes if they are above the threshold of almost $24M. If estate planning was done and all the assets were already removed from the estate, that would be a different case. You should reach out to your tax advisor so that they can give you other detailed information. This can get complicated especially if the assets are in the partnership structure and step up is not done correctly.