Certain financial obligations can diminish what beneficiaries inherit from an estate. The financial obligations of the decedent can consume a portion of their resources after their passing. The personal representative administering the estate may need to pay off debts using estate resources.
They may also need to address tax obligations. If the estate is worth millions of dollars, then federal estate taxes might be due. There is typically no way to prevent estate taxes during the probate process. Prior planning is necessary to minimize tax obligations.
What tactics can help reduce or even eliminate estate taxes?
1. Making strategic gifts
Many people who enjoy success during their lives want to share that success with their loved ones. They can provide regular gifts to their friends and family that reduce what their estate is worth after their passing. Not only can they maximize what their loved ones receive from the estate, but they can also enjoy watching the people they care about use part of their inheritance while they are still alive.
2. Adjusting property ownership
Frequently, people with valuable property thinking about their legacies take on co-owners for key assets. They share their interest in the company that they started with their children, who may run the business after they retire or die. They may add loved ones to the deed for their home, allowing them to potentially inherit the equity in the property without it passing through probate court.
Testators planning their estate can even file paperwork with their financial institutions allowing specific family members to assume the ownership of their accounts after their passing without the account going through the probate process. The fewer assets there are in the estate, the less likely the estate is to be subject to estate taxes.
3. Funding a trust
Trusts are beneficial for people with valuable resources for multiple reasons. Trusts reduced the risk of losing assets due to lawsuits, divorce or collection activity. They also help keep certain property out of the probate courts after a person dies. Trusts also offer enhanced control over the use and management of resources. They can prevent people from selling businesses or real property and can limit how people use the assets set aside for them by the trustor.
If the totality of an individual’s assets adds up to $15 million or more as of 2026, then federal estate taxes could apply. Discussing personal holdings and legacy goals with an estate planning attorney can help people minimize the risk of estate taxes and maximize what their loved ones will inherit.