How To Reduce Taxes And Other Expenses Of An Estate
Federal estate taxes are assessed on estate assets of decedents. These taxes are frequently amended on Capitol Hill and carry with them a great deal of controversy. Estate taxes are levied against the gross estate of the decedent. The gross estate is comprised of all of a decedent's assets at death, which includes assets placed in trusts and some gifts or transfers made within three (3) years before the decedent's death, as well.
Deductions that can reduce estate taxes
Several deductions can be utilized by prudent and savvy planners to reduce the estate taxes assessed against a decedent's estate. Those deductions include the following suggestions as a starting point:
Marital deduction - If possible, take advantage of the marital deduction. There is no estate tax on assets that transfer directly to a decedent's spouse. This tax exemption occurs because the Internal Revenue Service considers spouses as a single unit for the purposes of wealth transfers. This exemption does not apply if the assets pass first or otherwise to a trust or some other entity, rather than directly to the decedent's spouse. It is also important to note that the transfer must not take the form of a terminable interest or life estate, where another party or entity might take some form of full or partial ownership. This deduction for married parties is unlimited in amount.
Charitable donations - It is a good idea to give to charities for many reasons. Estate assets that transfer directly from the decedent's estate to a charity or governmental organization are eligible for deduction from the estate's gross value. Donations are, as such, not subject to being taxed for estate purposes. It is important to note that these donations to charity must be made directly from the decedent because if any contributions are made by the decedent's beneficiaries, the deduction does not apply.
Debts and mortgages claims - Any debts that the estate owes are deducted from the estate's gross value for estate tax purposes. If any portion of the debt is disputed or contested, then only the uncontested portion of the debt can be used for the deduction.
Estate administration expenses and costs deduction - You may deduct the expenses and costs associated with estate administration. This deduction is made prior to the calculation of any applicable estate tax. Costs comprise legal fees and executor payments.
Estate administration losses deduction - You may deduct the losses incurred during estate administration. The decedent's estate may reduce in value because of market changes, asset value changes and new assessments. Estate losses are deducted from the estate to achieve a gross estate value at the time of applying the estate tax.