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How Will Taxes Affect My Estate Plan?

How Will Taxes Affect My Estate Plan?

Tax season is here. Most people don’t realize how income taxes and estate taxes affect their estate planning and end up paying more than they should.


Developing a Tax Efficient Estate Plan

You have spent a career building your wealth to be where you are today.  As you craft your estate plan, many things must be considered.  One of the most critical factors in decisions regarding wealth distribution is tax impacts, specifically estate taxes and income taxes. With tax season here, a common question is: “how will taxes affect my estate plan?”  An estate planning attorney can answer this question for you and help you in developing an estate plan that is as tax efficient as possible. Most individuals neglect to realize how income taxes and estate taxes affect their estate planning and wind up paying the government more than they should.

What is Estate Tax?

The estate tax is a type of “death tax”, which is assessed on everything you own or have an interest in at the time of your death. This tax is imposed on both the federal and on the state level in Oregon and Washington and is paid directly out of your estate. The federal estate tax applies to gross estates in excess of $5.43 million. The Oregon estate tax applies to gross estates in excess of $1 million, and Washington’s estate tax applies to estates in excess of $2.012 million. The tax rate at the federal level is 40%! In Oregon the tax rate tops out at 16%, and in Washington the tax rate tops out at 20%. Your estate could potentially owe a substantial amount in taxes without proper planning.

Should you have an estate that is in the range of being subject to the federal or state level estate tax, it is critical that you consult with an estate planning attorney who can assist you in preparing a plan that includes strategies that will minimize estate tax liability.

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Income Tax Planning

In addition to estate tax considerations, proper tax planning also includes efforts to reduce income tax burdens. Some techniques might involve shifting income from a taxpayer in a higher bracket to a taxpayer in a lower bracket, making proper beneficiary designations on your IRAs which will permit the beneficiary of the IRA to stretch out the distributions for the life of the beneficiary, deferring income for a period of time, or taking advantage of depreciation rules. If a taxpayer receives an asset as an inheritance, as opposed to receiving an asset as a gift during their lifetime, the later sale of that asset by the taxpayer will be treated in a much more tax favorable way. In today’s economic climate, it is important to weigh estate tax avoidance against gain that would be due on a taxpayer’s sale of a gifted asset, as opposed to an inherited asset. An estate planning attorney knowledgeable in taxation will be able to help you navigate the twists and turns of the tax code and determine which income tax reduction techniques will be most beneficial to you.

How an Estate Planning Attorney Can Help

Tax planning is not just for the wealthy. All families can benefit from the utilization of estate planning techniques designed to improve tax efficiency (and who doesn’t want to pay less in taxes?!). Gevurtz Menashe’s estate planning attorneys are well-versed in estate and income tax reduction strategies. If you would like to learn more about how taxes can affect your estate plan or how your estate plan can be more tax efficient, any one of our estate planning attorneys can assist you.