Reducing the taxes on your estate

Federal and state taxes may be deducted from your property before it is transferred to your heirs. A federal estate tax applies if the value of your property exceeds a “unified credit”. In 1998 the “unified credit” was increased to $625,000 and it will automatically increase each year thereafter until it reaches $1,000,000 in 2006. In addition, most states impose inheritance tax. Your lawyer can help you prepare an estate plan that will reduce these taxes. For example, your lawyer may suggest that you make gifts before you die to reduce taxes, hold property in joint tenancy with your spouse, transfer ownership of life insurance policies to your spouse or heirs, or use a trust arrangement. Your lawyer can also help you shift the tax responsibility among heirs if you would like some of them to receive their shares without being taxed on it.

Reducing Probate costs

Probate costs include court fees, bond premiums and the fees of professionals who assist your executor with the administration of your estate. Your lawyer can help you reduce probate costs with estate planning tools like joint ownership, living trusts, lifetime gifts, and business recapitalizations. For example, your lawyer can prepare a living trust in which you appoint a trustee to distribute your property when you die. Some estate planning tools can help you reduce probate costs, but they may not lower your estate taxes.