What You Need to Know About Estate Taxes and How to Minimize Them

Understanding and managing estate taxes is a crucial aspect of effective estate planning. At DeGioia Law, we recognize that minimizing estate taxes can significantly impact the wealth you pass on to future generations. Proper planning helps preserve your assets and ensures that your estate is distributed according to your wishes. Here’s what you need to know about estate taxes and how to minimize them.

What Are Estate Taxes? 

Estate taxes are levied on the total value of a deceased person’s estate before it is distributed to heirs. These taxes can potentially take a substantial portion of your estate, which may reduce the inheritance left to your loved ones. Understanding how estate taxes work is the first step in developing a strategy to minimize their impact.

Federal Estate Tax Exemption: 

The federal estate tax exemption allows you to pass a certain amount of assets to your heirs without incurring federal estate taxes. As of 2024, the exemption amount is over $12 million per individual, meaning estates valued below this threshold are generally not subject to federal estate tax. However, estate tax laws and exemption amounts can change. In particular, federal tax law is expected to change by the end of 2025, which will reduce the exemption amount significantly. It is important to have an estate planning attorney who stays current with these changes. 

State Estate Tax Exemption: 

Even though the federal estate tax exemption is high, many states have their own estate tax exemption limits. DeGioia Law serves clients throughout Virginia, Maryland, and the District of Columbia. Maryland’s estate tax exemption amount is $5 million per individual, and the District of Columbia’s estate tax exemption amount is $4 million per individual. There is no state estate tax exemption in Virginia. 

Strategies to Minimize Estate Taxes

• Utilize Annual Gift Exclusions:
  • Gift Tax Exclusion: You can gift up to a certain amount per recipient each year without incurring gift taxes. In 2024, the annual gift exclusion is $17,000 per individual. By gifting assets during your lifetime, you can reduce the size of your estate and potentially lower your estate tax liability.
• Establish a Trust:
  • Revocable Living Trust: A revocable living trust allows you to transfer assets into the trust while retaining control over them during your lifetime. While a revocable trust alone does not reduce estate tax liability, there are many ways to structure the trust to defer payment of estate taxes following the death of your spouse. 
  • Irrevocable Trust: Unlike a revocable trust, an irrevocable trust removes assets from your estate, potentially reducing the overall value of your estate for tax purposes. These trusts can also provide specific benefits, such as charitable giving or asset protection.
• Leverage Charitable Donations:
  • Charitable Remainder Trusts: By setting up a charitable remainder trust, you can donate assets to a charity while receiving a charitable deduction and providing income to your beneficiaries for a set period. This can reduce your estate’s value and provide a lasting legacy.
  • Direct Donations: Directly donating a portion of your estate to charitable organizations can also reduce the taxable value of your estate, benefiting both your chosen charities and your estate plan.
• Consider Family Limited Partnerships:
  • Family Limited Partnerships (FLPs): FLPs allow you to transfer assets to family members while retaining control over the management of those assets. This strategy can offer valuation discounts and help reduce estate taxes by shifting ownership of assets to heirs.
• Explore the Use of Life Insurance:
  • Irrevocable Life Insurance Trust (ILIT): An ILIT can hold life insurance policies outside your estate, reducing the taxable value of your estate while providing funds to cover estate taxes or provide additional support to beneficiaries.

Benefits of Proper Estate Planning

• Preserve Wealth: Effective estate planning ensures that more of your wealth is passed on to your heirs rather than being consumed by taxes. This helps in preserving family assets for future generations.
• Ensure Fair Distribution: A well-structured estate plan helps ensure that your assets are distributed according to your wishes, minimizing conflicts and ensuring fairness among heirs.
• Reduce Stress for Loved Ones: Proper planning reduces the burden on your loved ones, who will have clear instructions and potentially fewer tax-related issues to address.

Contact DeGioia Law Today

At DeGioia Law, we are dedicated to helping you navigate the complexities of estate taxes and develop strategies to minimize their impact. Our expertise ensures that your estate plan is tailored to your unique needs and goals, providing peace of mind for you and your family.

Minimizing estate taxes through effective planning can significantly preserve your wealth and secure your family’s future. By utilizing various strategies and tools, you can reduce the tax burden on your estate and ensure that your assets are distributed as you intend. If you need assistance with estate planning and tax minimization, contact DeGioia Law. We are here to provide expert guidance and support to help you achieve your estate planning goals.

For more information, schedule a consultation today. Let us help you navigate the complexities of estate taxes and create a plan that protects your legacy and benefits your loved ones.