An estate’s structure determines how the estate is taxed when it’s passed on. If an estate isn’t set up well, it may be subjected to high tax rates -- which leaves less for heirs to receive. Estate conservation uses various legal and investment vehicles to minimize the taxes that an estate is subjected to when it’s passed on.
Estate conservation uses legal documents and investment vehicles to minimize how much an estate will be taxed when it’s passed onto heirs. Just as there are certain types of accounts that help reduce how much investments are taxed during a person’s lifetime, there are also structures that can be used to reduce how much a person’s assets are taxed when they pass away.
There are a few different vehicles that can be used to taxes:
Which ones are best for your situation will depend on your assets, net worth, and goals.
In addition to these tools, there are also many tax laws that estate planners can help individuals take advantage of. Some of these laws are very specific, and people are unlikely to know about them unless they specialize in estate planning. For instance, there may be some laws that farms can take advantage of -- and some estates may be able to take steps so that they are officially considered farms by the IRS. Knowing about these unique opportunities and whether it’s worth pursuing them requires advanced knowledge and expertise.
Anyone who has assets that they intend to pass onto heirs should talk with an estate planning professional. A professional can recommend appropriate conservation efforts based on your individual situation. If necessary, they can also provide referrals to people with expertise in other fields, such as inheritance laws and taxes.
Even though everyone can benefit from this type of estate planning and should talk with a professional, people who have larger estates stand to benefit more than those who have smaller ones. Not only do larger estates pay more in taxes because there are more assets to be taxed, but the estate tax code is progressive -- larger estates are taxed at higher rates.
Because minimizing estate taxes as much as possible requires expertise in several fields, many people end up working with several professionals when they’re structuring their estate. Certified public accountants, attorneys, and financial advisors may all provide advice on how to set up an estate so taxes are kept minimal.
While professionals can work on their own, firms that employ all these professionals are better positioned to provide comprehensive estate conservation services. Individuals can go to either professionals in solo practice or firms, but coordinating between professionals at a single firm is often easier.