Tax-Efficient Estate Planning: Strategies to Preserve Your Wealth

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Reducing one’s tax obligations is a significant factor in many financial decisions, including those you make as part of your estate planning. When you get far enough into the details of your estate plan, though, you may find that tax obligations can eat up a substantial portion of your money before it ever passes to the beneficiaries of your will. To keep that from happening, here are a few tax-efficient estate planning strategies to help preserve your wealth. 

The annual gift tax exclusion is the gift that keeps on giving.

Given that so many working adults these days live paycheck to paycheck, even working adults with six-figure incomes, a popular gift to give is money. A perk is that in some situations, you can also frame it as a gift to yourself since it can be cheaper for you to give money so it no longer belongs to you, and, as a result, you no longer have to pay taxes on it. 

The annual gift tax exclusion is the amount of money you can give as a gift in a year without paying gift taxes on it. In 2024, the maximum tax-free gift amount is $18,000 per recipient. You can give gifts up to $18,000 each to as many recipients as you choose and $13.61 million in cash gifts in your lifetime without being responsible for gift taxes. 

The gift tax exclusion resets yearly, so even if you give your child $18,000, for example, as a gift this year, you may also give them another gift next year. In the same year, you and your spouse can each give cash gifts to the same recipient, so, in this example, your child can get $36,000 this year from both of their parents.

Irrevocable trusts are tax-deferred, but revocable trusts are not.

During probate, the personal representative of your estate must file, at minimum, a final tax return for you as the decedent. If the probate case is complex, and the estate stays open for more than one year, then the estate must pay taxes every year that it remains open until it settles. Of course, the estate includes only the assets not exempt from probate. 

Keeping assets out of probate is a tried-and-true estate planning strategy that can save money on taxes. One of the most popular ways to accomplish this is to place them in a trust.

If you transfer property to an irrevocable trust, the property legally belongs to the trust, not you. Money in an irrevocable trust is tax-deferred. This means that when beneficiaries receive distributions from the trust’s income, they pay taxes on it. 

If you establish a revocable trust, the good news is you get to continue to amend the trust instrument as many times as you choose for the rest of your life. The bad news is that you are still responsible for paying taxes because the property in a revocable trust still legally belongs to you. A revocable trust becomes irrevocable when the grantor dies because the grantor is no longer around to amend it.

If you are wealthy enough to owe estate taxes, be strategic enough to reduce your tax burden.

Washington state residents whose estates have a value greater than $2.193 million are subject to estate taxes. If you think your property might be worth that much, you can reduce the value of your probate-eligible assets by establishing trusts and giving cash gifts while you are alive. Your Seattle estate planning lawyer can help you reduce the amount you must pay in estate taxes.

Contact a Seattle family law attorney about building a tax-efficient estate plan.

If you have started building your estate plan with the understanding that it can bring you and your loved ones peace of mind during your lifetime and after your death, you are off to a good start. The next step is minimizing the tax burden your estate plan creates. 

At Elise Buie Family Law, our team of Seattle estate planning attorneys can help you keep tax obligations in mind when crafting your estate plan. We have extensive experience creating tax plans to suit our clients’ individual needs and can do the same for you. Contact us today or schedule a time to speak

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