Your comprehensive estate plan should not just plan for the distribution of your assets after you are gone but also protect those assets while you are alive. One way to do that is to include tax avoidance tools and strategies in your estate plan. With that in mind, the Los Angeles estate planning lawyers at Collins Law Group offers some tax avoidance tips for your estate plan.
Tax Planning Tips
Always consult with an experienced financial advisor as well as an estate planning attorney when trying to incorporate tax avoidance strategies into your estate plan. The following tax planning tips, however, may be useful:
- Make use of the annual exclusion. For 2023, the annual gift exclusion for an individual is $17,000 and $34,000 for a married couple. This means you can gift up to $17,000 ($34,000 for couples) in assets to an unlimited number of recipients each year without those gifts counting against your lifetime exemption. The limitation on gifts to non-citizen spouses also increased to $175,000 for 2023.
- Contribute to college. Contributions to 529 college savings plans and transfers to insurance trusts and other inter vivos trusts that are subject to “Crummey” powers of withdrawal do count toward your total annual exclusion gift limit for the year; however, you can make five years of annual exclusion contributions to a 529 plan at one time without reducing the lifetime exemption. You will need to file a gift tax return and send the required Crummey notices.
- Pay for tuition, medical expenses, or health insurance. If you make direct payments for tuition, medical expenses, or health insurance premiums for a beneficiary these payments will usually not count toward the annual exclusion limit.
- Take advantage of the increased lifetime exemption. In 2018, the lifetime exemption limit for the federal gift, estate, and generation-skipping transfer taxes was temporarily increased. For 2022 the exemption is $12.92 million per individual and $25.84 million for married couples. The exemption will revert to the previous amount of $5 million (adjusted for inflation) in 2026.
- Understand portability. Portability refers to the unused portion of a deceased spouse’s gift and estate tax exemption which is “ported” over to the surviving spouse. The surviving spouse may then use his/her exemption plus the unused portion of the deceased spouse’s exemption.
- Make sure you understand the recent changes to retirement accounts. The SECURE (“Setting Every Community Up for Retirement Enhancement”) ACT made changes to how IRAs are treated. The age at which you must take your required minimum distribution is now 72 and the maximum age for traditional IRA contributions was eliminated.
- Consider establishing an Irrevocable Life Insurance Trust (ILIT). The proceeds of a life insurance policy that is owned by an ILIT are not considered estate assets, meaning they are not counted for federal gift and estate tax purposes.
- Make sure you title assets advantageously. The manner in which jointly owned assets are titled will determine if the asset must go through probate. It can also impact how the asset is (or is not) taxed at the time of your death.
- Update your estate plan. Schedule a routine review and revision of your estate plan every few years to make sure that your plan reflects recent changes to tax and/or estate planning laws.
Contact Los Angles Estate Planning Lawyers
For more information, please download our FREE estate planning worksheet. If you have additional questions or concerns relating to tax avoidance within your estate plan, be sure to consult with an experienced Los Angeles estate planning attorney. Contact the Collins Law Firm by calling (310) 677-9787 to register for one of our FREE estate planning workshops.