Emm
Active member
Inheritance Tax Consequences Planning Your Taxes
You should be aware of the various taxes that could be levied against your estate when you are planning for an inheritance. It is possible to avoid paying unnecessary taxes on your estate if you and your heirs are aware of and prepared for the consequences.
Making gifts might also lessen the amount of your estate that is subject to taxes. But before you hand over any cash, make sure you consult an expert.
Pensions
Pensions are a great way to save on taxes and provide for your heirs. Still, this shouldn't be relied on in place of liquid assets like savings accounts or investment portfolios.
The pension's distribution upon the deceased's passing is an important factor to think about. What this means depends on the pension plan the member is a part of and the people they've designated as beneficiaries.
With the help of an Expression of Wish or Nomination form, members of many schemes can name who they'd like to receive their benefits. This should be updated after any major life changes, such as getting married, divorcing, or having a child.
After a member's death, payments to beneficiaries (whether in the form of a lump sum or a flexi-access fund) are no longer subject to inheritance tax (which could have been as high as 55%) as of 6 April 2016. As a result, some investors might fare better with a flexi-access fund than with a lump payment.
Trusts
If you want to keep your assets secure while maintaining some measure of management authority, a trust may be the way to go. Also, they can help you minimize your estate's taxable value.
Putting assets like the family house or business into a trust can save heirs from having to sell the assets to cover inheritance tax. Knowing that your loved ones will continue to operate the company or reside in the home after your passing might also bring you some comfort.
You can select a trust that best suits your situation. Trustees of some types of trusts let you specify how much of the fund's income and principal should go to each beneficiary. Some plans are less flexible and provide a variable quantity of income that is then dispersed to recipients.
Investments
Investments can be used as part of an overall strategy to reduce the impact of any inheritance tax burden. Stocks, bonds, real estate, and even commodities are just some of the various investing options out there.
An investment is a long-term commitment that normally involves some degree of risk and may not yield the desired results as quickly as you'd like. Nevertheless, investment can be a fantastic method to build wealth over time.
Investing in equities, for instance, can allow you to grow your money faster than inflation. You can get the best investing advice from a reputable financial advisor.
Gifts
Inheritance tax liabilities can be greatly reduced through the giving of assets. It's conceivable, for instance, to give away a piece of your farm to your kids or grandkids without having to pay gift taxes as long as you keep detailed records of the transfers.
Gift giving may be a tricky business, so make sure you choose wisely. Gifts of cash or assets with little appreciation are better suited for giving during one's lifetime, while transfers of highly appreciated assets are best handled through one's estate.
Using a taxpayer's current gift tax exemption is one option, but it's often ignored. By allowing the item to continue to accrue value outside of the taxpayer's estate, transfer taxes can be kept to a minimum.
Leveraged transactions are another option for reducing gift and estate tax liabilities. For example, a grantor retained annuity trust, a loan within a family, or a sale in exchange for a promissory note to an individual or trust with the correct structure all fall into this category ("GRATs").
You should be aware of the various taxes that could be levied against your estate when you are planning for an inheritance. It is possible to avoid paying unnecessary taxes on your estate if you and your heirs are aware of and prepared for the consequences.
Making gifts might also lessen the amount of your estate that is subject to taxes. But before you hand over any cash, make sure you consult an expert.
Pensions
Pensions are a great way to save on taxes and provide for your heirs. Still, this shouldn't be relied on in place of liquid assets like savings accounts or investment portfolios.
The pension's distribution upon the deceased's passing is an important factor to think about. What this means depends on the pension plan the member is a part of and the people they've designated as beneficiaries.
With the help of an Expression of Wish or Nomination form, members of many schemes can name who they'd like to receive their benefits. This should be updated after any major life changes, such as getting married, divorcing, or having a child.
After a member's death, payments to beneficiaries (whether in the form of a lump sum or a flexi-access fund) are no longer subject to inheritance tax (which could have been as high as 55%) as of 6 April 2016. As a result, some investors might fare better with a flexi-access fund than with a lump payment.
Trusts
If you want to keep your assets secure while maintaining some measure of management authority, a trust may be the way to go. Also, they can help you minimize your estate's taxable value.
Putting assets like the family house or business into a trust can save heirs from having to sell the assets to cover inheritance tax. Knowing that your loved ones will continue to operate the company or reside in the home after your passing might also bring you some comfort.
You can select a trust that best suits your situation. Trustees of some types of trusts let you specify how much of the fund's income and principal should go to each beneficiary. Some plans are less flexible and provide a variable quantity of income that is then dispersed to recipients.
Investments
Investments can be used as part of an overall strategy to reduce the impact of any inheritance tax burden. Stocks, bonds, real estate, and even commodities are just some of the various investing options out there.
An investment is a long-term commitment that normally involves some degree of risk and may not yield the desired results as quickly as you'd like. Nevertheless, investment can be a fantastic method to build wealth over time.
Investing in equities, for instance, can allow you to grow your money faster than inflation. You can get the best investing advice from a reputable financial advisor.
Gifts
Inheritance tax liabilities can be greatly reduced through the giving of assets. It's conceivable, for instance, to give away a piece of your farm to your kids or grandkids without having to pay gift taxes as long as you keep detailed records of the transfers.
Gift giving may be a tricky business, so make sure you choose wisely. Gifts of cash or assets with little appreciation are better suited for giving during one's lifetime, while transfers of highly appreciated assets are best handled through one's estate.
Using a taxpayer's current gift tax exemption is one option, but it's often ignored. By allowing the item to continue to accrue value outside of the taxpayer's estate, transfer taxes can be kept to a minimum.
Leveraged transactions are another option for reducing gift and estate tax liabilities. For example, a grantor retained annuity trust, a loan within a family, or a sale in exchange for a promissory note to an individual or trust with the correct structure all fall into this category ("GRATs").
