How Does Estate Planning Help With My Taxes?
It’s that time again: tax season. While we may dread it, it happens every year whether we want it to or not. Frequently on our Blog we espouse the benefits of Estate Planning, a process where you legally establish what will happen to your estate (your property and belongings) and your assets (your money) after you pass away. Estate Planning also involves electing guardians for your children and making long-term healthcare decisions. What many people may not realize is that Estate Planning goes hand-in-hand with Tax Planning.
Creating and properly taking advantage of an Estate Plan can save you money, both now and in the future. For a thorough overview of all the options available to you specifically, contact the Law Offices of Mackenzie Sorich, PLLC. We will cover some of the general strategies for Washington state residents below.
The basic combining value between these two fields is that when someone passes away, their estate is subject to an estate tax. This means that whatever you leave behind may be taxed, and your family will have that tax removed from your assets before they receive them. If someone dies without creating an Estate Plan, their estate will be determined in probate court, sometimes, a long, expensive, emotionally draining process. Through creating an Estate Plan, your attorney can help you find methods that will prevent probate court and distribute your assets while avoiding the estate tax.
One of these methods is through gifting. In 2021, the IRS allows you to gift up to $15,000 to an individual without having to include it in your annual tax return. The gift will be untaxed for you and for the recipient, and usually does not need to be included on either of your 2021 taxes. This means that if you were planning on gifting money to a loved one in your Estate Plan, you could instead gift it to them now (potentially in annual increments) without having it taxed as part of their income or having your estate taxed for it.
That $15,000 limit is per gifter, meaning a couple could gift up to $30,000 to an individual this year. It is also, importantly, per individual. This means that you could give $15,000 to each of your four siblings and none of it would be taxed. In Washington state, there is no limit to the amount of people you can gift to. That means, as long as the amount is not higher than $15,000, you could gift as many people as you want.
If you don’t want your loved ones to receive the money now, another option is making a trust. A trust is basically a fund that you add to regularly while you are alive. When you pass away, it can be given to a loved one or to a charity. Trusts are important because when you fund them, the money no longer belongs to you - which means it cannot be taxed as your estate. Trusts, unlike leaving something behind in your Will, are not subject to probate court.
Of course, trusts and gifts are just two of the ways that Estate Planning can help out your taxes. If you don’t have an Estate Plan in place, you are not only leaving money on the table but also leaving your family vulnerable. Contact the Law Offices of Mackenzie Sorich, PLLC today to get started on your Estate Planning journey. We are a group of compassionate legal professionals at your service!