3 Strategies to Handle the Estate Tax


How do you handle the estate taxes in your Estate Plan?

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Most Americans will not have to pay the estate tax under the current laws. But what if you are taxable? What if you’ve acquired enough wealth to be at risk?


The three basic strategies are:


1. Delay the tax until the second death

2. Remove things from your estate during life

3. Make someone else pay the tax Nothing is taxed that is given to our spouse.


So we can leave everything to them and then hope they spend enough money during life to not have to pay the tax. The spouse could also do some planning as well and deal with it in other ways. You can leave it in a trust to benefit your spouse if you worry they will remarry. The next strategy is to get things out of our estte. We are only taxed on the value of our estate. Anything that we remove from our estate within 3 years of our death is not counted in this total. The most common ways to do this would be to give them to heirs (or in a trust for heirs) or to sell them to a trust or an outsider. This is most common for businesses and real estate.


This way, we can either get them out of our estate in the form of a gift or minimize their value. If we sell them, then only the purchase price (even if it is financed and the buyer pays us payments) is included in that overall estate amount. The final method is to make someone else pay for it. This is usually an insurance company. Most commonly, a life insurance policy is used. This policy is placed in a trust so that it isn’t included in the estate. The premiums are cheaper than the tax. The death benefit that comes in once you die is used to pay the taxes.

Will you pay the Estate Tax?


Will you have to pay estate taxes?


Chances are that you won’t have to pay the Federal level estate tax. Most Americans will not have to pay it. This law changes a lot though. It is one of Congress’s favorite things to tinker with so you must stay up to date. State level estate tax is different.


Minnesota changes its tax often as well, but, as of right now, you will pay tax if your estate is worth over $3 million. Many folks will hit that. You add your house, your IRA/401k, and life insurance proceeds together and many have that amount.


If you have questions leave a comment or schedule a session by clicking here.


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Common Mistakes in Incapacity Planning

Common Incapacity Planning Mistakes

Many people will do this because they think they are making things easier. Often, these things make things worse in the long run. Especially when it comes to government benefits.

A Power of Attorney and an Advanced Healthcare Directive are often the legal documents needed to solve these problems.

Changing title isn’t necessary and can often lead to more problems. You could end up making a gift that you didn’t intend.  You could expose your assets to the other loved ones creditors.  You could expose them to your child’s divorce.  You can disqualify yourself from government benefits.

This video explains more.

If you have questions or want to plan with me, click here to schedule a planning session.


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Planning is not a Projection

Just predicting the future and letting it run its course is not planning. Planning is when you take identify steps that you can take now to shape the future and change it for the better. You do not tax plan just by predicting how much money you will have to pay at the end of the year. You plan by deciding what you can do now to lower that future bill. Then seeing it through.

The same is true for business planning and estate planning. You are going to die. Your stuff will be passed to someone else. Planning just to transfer the assets is not a plan. A plan will help you do things with those assets to make sure they take care of your family when you are gone.

Planning Is About People

Planning is about people. Too often we focus on the things. We focus on taxes or we focus on the business and the heirlooms.  Don’t forget that the purpose of planning is people.

Planning is about our loved ones, our employees, our customers, and the other people in our lives. It is about a result or a goal that enhances our lives and theirs.  The plan itself is about taking steps and actions to achieve those outcomes to enhance people’s lives.

The things and the money are the fuel for that process. We use them along with our other talents to achieve the goals. We just got out of tax season. Many people are focused on planning right now. It is just that they are focused on the dollars and cents.  We should look to the people first.

If you have more questions or would like to schedule a planning session, click here.

What are Death Taxes?

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What are death taxes?  That is a very common question that I get in my Estate Planning practice.  Death taxes are commonly also called the Estate Tax.  This is the only tax that happens only when you die.  There are other taxes that might occur when you die like the Generation Skipping Transfer Tax, but that tax can also apply during life.  So the death tax is generally the estate tax.

The tax can apply to everything you own at death.  This also includes the death benefit of life insurance policies and anything that you gave away within three years of your death.  The death tax doesn’t affect many people at all.

The Federal Estate tax only starts to apply once you get over roughly $11 million in assets.  That doesn’t affect most families. The Minnesota Estate tax will soon only affect those with over $3 million in assets. That could affect more people. Especially if you die just before retirement.  The value of retirement accounts, a nearly paid off home, and life insurance proceeds can creep up into that amount easily.

There are many things that you can do to plan for the tax.  You can also take steps to make your life insurance not count.  If you want to know more about this, then schedule a planning session with me and I’ll gladly go over your situation.

Does your trust have to pay Minnesota state income tax?

The Minnesota Supreme Court handed down its decision in Fielding v. MacDonaald et al.  The decision rendered the statute that determines when a trust is taxed as a resident to the state unconstitutional as it applies to many different trusts.  Previously, Minnesota would tax a trust as a resident perpetually if the Grantor was a Minnesota resident at the time it became irrevocable (among other times).  This raised the question of whether this tie to the grantor was constitutional for due process reasons.


Getting the Most Out of The New Pass-thru Business Tax Deduction

  • Trusts can also get a 20% Qualified Business Income Deduction
  • Trusts will likely also get their own SALT deduction
  • This can cause more deduction to be had overall
  • Planning for asset protection and business succession including trusts, now also benefits client’s income tax planning
  • Clients should consider using trusts to get the most out of these deductions and to create the best value plans