Estate planning is a very beneficial action. However the taxes that are needed to be paid during the process can be painful. There are various ways which can be undertaken in order to reduce the estate taxes. Below are given such outlook and ways than can be followed if you want to reduce your taxes on estate, but it is always recommended to hire an Arizona tax lawyer to assist you in the process.
Life insurance trusts
The very first thing that you can do is to formulate an irrevocable or unchangeable life insurance trust and then transfer its ownership to the trust. It is very much in use as it is legal in nature as well as after the transfer all the proceedings are owned by the trust and not you. This basically terminates the chance of someone else using the insurance money that you have formulated for yourself like the ones you might not trust in spite of your relation with them. This way you can get the benefits from the proceedings without any fear of nit being able to pay the policy premiums. In order to gain the tax savings, the following requirements should be taken into consideration:
• You do not have the right to be the trustee no matter if you are the original property owner.
• The trust has to be formulated at least three years before your death or else the trust will be disregarded. This means that for the trust to be properly operated, the time span of the formulation of the trust should be three years before your death and not less than that time span.
• You will have to avoid the possibility of being considered as the owner of the property or else the estate will fall under taxable property, therefore the trust that is formed must be rigid or irrevocable.
As life insurance trusts can be very confusing, you should consult a lawyer for that matter so that you do not get any legal constrictions and problems later on.
Transferring ownership of your property to someone else maybe the easiest way for you to reduce the taxes but at the same time there are various drawbacks. You are not liable to your property after you have transferred it to someone else. The decisions thus taken will not be yours and in case of separation as in divorce the ownership may actually belong to your spouse. However transferring the ownership to someone you really trust and who you think really deserves it like your children does not hold any such complications. Even while transferring your life insurance policy, such can be done by signing a simple transfer paper. This way the one whom you have transferred your policy to will have to pay the premiums as well as dues. The insurance company should be notified while doing so and any alterations that you want to make have to be done before the transfer.
By following the above tools or ways, the tax payments on your estate can be avoided. As risky as it sounds, the transfer of ownership seems a very applicable way to keep the taxes away form your business.