how to avoid the estate tax

How to Avoid The Estate Tax


Taxes play a large factor in developing an effective estate plan. Thanks to the dreaded “estate tax,” if you fail to properly plan, Uncle Sam will take his final cut on your way out the door, and your largest tax bill ever will come when you are long gone. The federal estate tax is a totally separate tax from the income tax system.

While death and taxes are a certainty, death taxes are anything but certain. Right now an ideal time to be proactive and get planning!

Avoiding the tax with an estate size under the federal limit:

Federal taxes may need to be paid if your estate is over a set amount when you pass. As of 2021, your estate will be taxed if its assessed value exceeds $11.7 million for a single person or $23.4 million for a married couple. If your estate exceeds that amount, it will be subject to a 40% tax rate. At Phelps LaClair, we can help you create a plan designed to reduce or eliminate death taxes

Be mindful of other states that impose an estate tax: 

As of 2006, Arizona no longer levies an estate tax. However, many other states do impose a state-level estate tax. Arizona citizens who own property or have heirs who live in one of those states may be subject to that state’s taxation. 

For example, Dean is retiring and he assumes his estate will be free of tax because: 

      1. Dean has an estate under the federal taxable amount and 
      2. Dean is retiring in Arizona, where an estate tax is not imposed.  


However, Dean’s estate includes property that he owns in Maryland that he’s bequeathing to his grandson. Maryland has an estate tax imposed on the transfer of property from an owner to a descendant. 

When Dean created his estate plan, he didn’t realize that his Maryland property would be subject to estate tax as ownership transferred to his grandson. Now, his grandson is left paying the estate tax based on the value of the inherited property. For inheritance tax in Maryland, there is no exemption. 

Ways to Minimize Estate Tax


7 Tax Planning Strategies


Making sure you can avoid the estate tax will require solutions unique to your situation. This isn’t a one-size-fits-all game. At Phelps LaClair, we understand all the estate planning tools on the market, and we are ready to help you navigate them. We can guide you through the planning process while honoring your wishes. 

Here are seven tax planning strategies we recommend: 

      1. Create a charitable trust
      2. Use family limited partnerships
      3. Reduce the size of your taxable estate through gifts or annuities
      4. Create an inheritance trust
      5. Create a revocable living trust
      6. Make the annual exclusion gift
      7. Plan your estate with tax laws in mind

You can read the full post here if you’d like more details about these seven strategies.

Retirement Accounts and Estate Tax Issues

IRAs and other retirement accounts can create different tax issues. If you have a named beneficiary on these accounts, they can be subject to taxation. Phelps LaClair now offers a groundbreaking new solution: the IRA Inheritance Trust

An IRA Inheritance Trust is a revocable trust that you name as the primary or secondary beneficiary of your retirement accounts. You still maintain control of it, and when you die, the trust can stretch out the minimum taxable distributions to your heirs. This preserves the value of the retirement account over a longer period of time.

Estate Planning Experts in Arizona

Do you need help understanding the fine details of inheritance taxation laws? Ready to work with an expert? At Phelps LaClair, your first consultation is free. Our attorneys are expertly informed on current tax law and we would be delighted to help you with all of your estate planning needs. Contact our team today!





photo from Quote Inspector on 5/3/2021 | used under the Creative Commons License

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