Ways to Avoid Inheritance Tax

There are several ways that individuals can delay, reduce or avoid inheritance tax. Although individuals avoiding inheritance tax sounds as if they are breaking the law, there are ways that it can be done legally. Avoiding the inheritance tax takes careful planning on the benefactors and beneficiaries part. In some cases, avoiding the inheritance tax is achieved simply because of the relationship between the benefactors and the beneficiary.

In other cases, avoiding the inheritance tax involves leaving beneficiaries property worth a certain amount of money which falls below the taxable limit. In other cases, portions of estates are transferred while the benefactor is still alive, thereby avoiding the inheritance tax. There are several ways to avoid inheritance tax and many of them are legal.

Benefactors that inherit in 2010, can avoid inheritance tax on the Federal level, at least for the time being. Although there is currently no Federal inheritance tax, the tax may be retroactive once it is reinstated, which will likely happen in the immediate future. The financial future of those that inherit in 2010, can be in jeopardy if they are later expected to pay an inheritance tax of up to sixty percent on the value of inherited property. An irrevocable life insurance trust is sometimes utilized to avoid inheritance tax. That type of trust is utilized for parents wishing to give children money in order for them to pay for their parent's life insurance.

Life insurance benefits, rather than inheritance, can often help families to avoid inheritance tax. Life Insurance benefits are one way of allowing children to inherit money, absent of the inheritance tax, as long as those benefits are actually paid out. In other words, the life insurance terms could not have been violated by the deceased, of there would be no payout to the beneficiaries. Avoiding the inheritance tax can also be accomplished by leaving money to a charity as long as other rules are followed. It is generally a good idea for benefactors to take part in careful estate planning to avoid paying the highest estate tax.

Avoiding inheritance tax can sometimes be accomplished if estate planning includes some creativity. Often, taxes are imposed on estates or inheritance when its value meets the maximum exemption amount. By dividing the estate between several beneficiaries, the benefactor may help them avoid the inheritance tax. In addition, relatives such as children and spouses, can often inherit tax free. The shared property of spouses, such as homes, will also be treated differently for tax purposes.

Each state has different inheritance tax laws and benefactors should examine the laws that apply to their estate in order to avoid inheritance tax. Financial gifts are sometimes better when they take place when the benefactor is still alive. Again, the laws vary in each state and the outcome will depend on those laws.

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