In our previous post, we began looking at five common ways people's estate plans mistakenly leave money to the IRS. The combination of income, estate, capital gains, and gift taxes can take a substantial sum out of an estate. With some proper planning, though, these mistakes can be avoided.
As we've already mentioned, it is important to do proper succession planning and avoid double taxation on retirement plans. The next two suggestions deal with the importance of taking advantage of important estate planning tools. These are family limited partnerships and life insurance.
Family limited partnerships can be used to hold investments in order to avoid taxes. Sometimes families set up more than one family limited partnership, depending on their goals. When properly structured, family limited partnerships can achieve a 35 percent discount on estate taxes.
Life insurance can also be an effective, and very diverse, estate planning tool. According to the author of our source article, there are dozens of core life insurance strategies and hundreds of variations available, depending on one's goals and family situation. The key to advantageously using life insurance in estate planning is knowing how to structure its ownership using the right strategies.
Finally, it is important to realize that a comprehensive estate plan will have both a lifetime plan for saving on taxes and building wealth and a death plan, and that both of these should dovetail together elegantly. The basic strategy for one's lifetime plan is to get each significant asset out of your estate for tax purposes while still retaining control over those assets.
Tax liability reduction can be a complicated matter, of course, and it is essential to consult a qualified attorney and accountant to achieve your estate planning goals.
Source: vendingtimes.com, "The Five Biggest Estate Planning Mistakes That Enrich The IRS Instead Of Your Family," Irving Blackman, February 7, 2012.