Methods to Reduce or Eliminate Estate Taxes
The law on Estate Taxes has just been changed by Congress and signed by the President. Estate Taxes have returned. (Click here to see an article on the current state of the taxes.) If taxes are due, they are to be paid, and we at Cutchin Law Firm would never do anything to suggest otherwise. However, we also feel that only those amounts of taxes which are actually due should be paid. The purpose of this page is to let you know of some of the popular methods which are used to reduce or eliminate estate taxes.
You need to be aware that any situation with tax consequences must be approached on a case-by-case basis and that you must have knowledgeable tax consultant(s). The information given here is far from complete and is just provided to give you an overall understanding.
Gifts to charities
There is a saying among estate planning attorneys that we can tell anyone how to completely eliminate estate taxes. All one must do is give everything to charities. Gifts to charities reduce the gross (taxable) estate, so if everything goes to charities, there is no taxable estate!
Few people, however, prefer giving everything to charity instead of to their family. But any gifts to charity will reduce the amount of estate taxes payable.
A-B trust
Depending on what the Estate Tax law is finally decided to be, normally if you are married and the total assets of both husband and wife exceed the estate tax deductible amount, it may be advisable for both of you to have an A-B trust. This is a type of trust in which one gives up to the amount of the estate tax deductible to a by-pass trust (it also has many other names, like a credit shelter trust or a family trust). The remainder of the estate passes to the surviving spouse. This can eliminate any estate taxes on the death of the first spouse, and may reduce or eliminate estate taxes due upon the death of the second spouse.