• Hoyt, Filippetti & Malaghan, LLC

Estate Planning Basics to Minimize Taxes



Although it may seem overwhelming, estate planning doesn’t have to be a daunting or complicated process.


Even if an estate’s assets are not subject to estate taxes, proper planning is essential to minimize federal income taxes and ensure that money or other assets end up with the intended heirs.


If you are just getting started with estate planning, consider these five steps.


1. Write a will. A will is one of the most basic, yet most important documents in an estate plan. It may seem obvious, but many people don’t have a will. A will stipulates the division of assets to prevent a court from determining the fate of your assets. If you don’t have a will, or if your will has not been recently updated, it needs to be done as soon possible.


2. Update beneficiaries. Some accounts, such as retirement funds and life insurance policies, allow you to designate beneficiaries who will receive those assets. Make sure you check and regularly update beneficiaries. A good time to do this is after any major life events, such as the birth of a child, marriage, or divorce.


3. Create a trust. If you are leaving a significant amount of assets, it may make sense to set up a trust. A trust allows you to control your assets while allowing someone else - a designated trustee - to distribute your wealth. Consider some of the common types of trust and which may be best for your situation. A permanent or irrevocable living trust may be the most beneficial for tax purposes because assets belong to the trust rather than the individual and thus are not subject to estate taxes.


4. Convert to Roth accounts. Distributions from traditional retirement accounts are subject to regular income tax, which can be significant. When possible, converting to Roth accounts can lower future tax burdens. Converted amounts are subject to taxes, but withdrawals are tax free.


5. Gift your money. If you already know where you want your money to go, consider making gifts while you are still alive. According to the IRS, individuals can give up to $15,000 (2021) per person per year in gifts, which are tax-free for recipients. Monetary gifts also lower the value of the estate, which can minimize estate taxes when done correctly.


Charitable donations are another way to reduce estate value through gifting. This can be completed through planned recurring charitable donations set up through a donor-advised fund. This option will also provide a tax deduction when money is deposited into the fund for charitable giving while still allowing you to make charitable grants later on.


Each situation is different and will require different strategies. It is important to seek the guidance of a professional who understands required laws and regulations and can advise you on the best estate planning steps for your unique circumstances.


If you have questions, contact HFM today. Our professionals are well versed on the latest issues to provide our clients with professional, personalized services.

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