Inheritance and Estate Tax Planning

Federal and State Tax

Federal and state tax laws are always changing in regards to inheritance and estate tax, and it can be difficult to determine what tax liabilities your assets will have in any given year. The attorneys at Gillespie Shields and Taylor are well versed in the finer nuances of Arizona estate tax laws. Fortunately, Arizona doesn’t impose state estate taxes, but that doesn’t mean you shouldn’t strategize an estate plan that will reduce taxes elsewhere. An experienced attorney can put together a comprehensive estate plan that secures the financial future of you and your family and may help avoid expensive taxation.

Federal and State Estate Tax Limitations

Federal limits on tax exemption change yearly, and they dictate how much money you can leave to heirs that is not tax liable. Currently, the IRS limits tax exemptions to $5.43 million per person with a cap on annual gifts over $14,000. These numbers change every year based on inflation rates. The state of Arizona has neither an inheritance tax nor a state estate tax.

Attorneys take these numbers into account when they are formulating an estate plan to help keep your taxes to a minimum. Although people are able to leave an unlimited amount of assets to their spouses which will remain untaxed, this isn’t always the best option. It means that your children may end up paying more in taxes when they receive their inheritance from your spouse. Well-formed estate plans usually include a handful of tax-saving strategies, such as giving annual gifts or creating an irrevocable trust.

Using Irrevocable Trusts to Cut Down on Estate Taxes

Traditionally, attorneys use trusts to minimize estate taxes among other benefits. A trust allows a third party to take ownership of your assets and distribute them based on contingencies which you provide. There are a variety of trust types, and they all serve different purposes. For tax purposes, clients often choose to implement an irrevocable trust. An irrevocable trust transfers your assets completely to a third party, where estate taxes and probate cannot reach them. Any income tax liability that is generated after the transfer will not be your responsibility.

The assets will also be protected in the event that any civil judgments are made against you. However, an irrevocable trust (as the name suggests) cannot be revoked, and once established, it cannot be modified. When choosing between irrevocable and revocable trusts, there are specific trust types which grant specific beneficiaries assets for various uses. A qualified estate planning attorney, like the attorneys at Gillespie Shields and Taylor, can determine which type of trust will help you avoid hefty estate taxes while fitting into your individual needs.