King Estate Law, PLLC Blog

WILL YOUR LOVED ONES HAVE TO PAY UP TO 40% IN ESTATE TAXES?

Mon, 05 Feb 2024 21:01:10 GMT

The assets you hold are already subject to taxation. Income that you make through work, royalties and properties, as well as rental or ranching income, is all subject to taxation when you first earn it. If you reinvest those earnings, you will then also pay taxes on your investment earnings eventually.

Given that you have already paid taxes at least once on the resources that comprise your personal wealth, you may feel like it is a reasonable expectation to pass your legacy onto your loved ones without additional taxation. For some people, that assumption leads to issues for their heirs when they die.

IS THERE AN ESTATE TAX FOR PEOPLE IN TEXAS?

While the state of Texas does not impose an estate tax or death tax on residents, those with large business enterprises, ranch property or massive holdings that reflect a lifetime of successful investing may be subject to federal taxation when they try to pass their wealth onto others.

If you have a legacy you want to leave behind for the people you love, planning now could protect them from paying up to 40% of what they could inherit to the federal government in taxes.

THE MORE YOU HAVE TO LEAVE BEHIND, THE MORE TAXES YOU HAVE TO PAY

The federal estate tax only applies to estates that have a total value of at least $11,580,000 , depending on when the testator dies. Any amount the property above that exempt amount is subject to taxation, and the greater the difference between the total estate value and the estate tax threshold, the greater the tax applied to the overall estate.

In other words, the estate tax is a progressive tax that penalizes those with larger estates more than those with an estate just barely over the threshold. The maximum tax rate is as much as 40%, although many estates pay lower rates, often in the teens.

PEOPLE WITH LARGE ESTATES CAN PLAN TO MINIMIZE THEIR TAXES

If you already know that what you leave behind for the people you love will exceed the threshold for federal taxes, you can plan ahead to protect your loved ones from losing out on resources you want them to have.

A thorough estate plan for someone with significant resources should include tax planning or wealth preservation planning in order to maximize the long-term benefit of a lifetime of saving and earning.

DIFFERENCES BETWEEN FAMILY TRUSTS AND WILLS

Fri, 17 Sep 2021 18:49:39 GMT

Estate planning is necessary if you want to protect your assets from uncertainty, liability or extra taxes in Texas. Your will details how assets are managed after your death, but a trust may offer more safety for your estate. Here are some differences between the two.

WRITING A WILL

Having children makes writing a will a smart move. A will is inactive for as long as you’re alive. Once it’s activated at the notice of death, probate starts, which manages your assets. The probate process will make assets public while putting them into the custody of a local court, and it’s possible for someone to contest your will.

EXAMINING A FAMILY TRUST

Unlike a will, once you create a trust, it’s active and typically can’t be contested. A trust consists of a trustor, which is you, and a trustee, which is the administrator of a trust’s contents. This can be an investment agency or individual you choose.

Depending on the tax status, a trust can be revised occasionally, or it may be irrevocable. The contents of a trust are private, so those receiving the assets therein keep their financial privacy. Here are some reasons why Texans choose trusts when estate planning :

– Protecting assets during a divorce
– Keeping beneficiaries qualified for government programs
– Building tax funds and proximity accounts
– Eliminating the potential of probate

THE DIFFERENCE NET WORTH MAKES

A will is a foundational document that prepares an estate for the death of its owner. A will is common to have alongside a trust also. Preparing an estate for the event of someone’s death often leads lawyers to create a mix of both, using a will and a trust together. You need a will to detail what you want to be done with your estate. Protecting those assets, however, is what many Texans do via a trust.

The higher your net worth, the more important it is for you to make plans regarding your estate. You want to be able to rest easy that your assets are protected if something unexpected happens to you.

HOW YOUR ESTATE PLAN COULD IMPACT YOUR BUSINESS

Tue, 15 Jun 2021 19:20:41 GMT

Even after devoting decades to building and maintaining a successful business, many individuals might lose track of the importance of planning an exit strategy. Whether you want to keep the business in the family or sell it to reap the benefits of your hard work, a strong plan is crucial.

Business owners should take the time to develop a comprehensive estate plan as well as an efficient succession plan for their business. The succession plan forces owners to take an objective look at the future of the organization and set a plan in motion that encourages growth. At the very least, the business succession plan should detail the transfer of management and ownership of the business. Additionally, the succession plan can include:

A development and training agenda for successors
An outline for the delegation of responsibility for successors
An overview of future growth and retention plans for the organization
A list of outside resources who can provide insight, guidance and objectivity to the business when necessary

In addition, the succession plan can detail the coordination between the new owners and new managers, if they are different people. This coordination can include elements such as growth potential, changes that are already in motion, the division of responsibility and guidance regarding the business owner’s family.

An attorney who has experience in both business law and estate planning can help you carefully evaluate your business needs and the goals of a succession plan. Whether you are planning to sell now or planning for the future control of your company, thoughtful and careful preparation is a key element.

THE SIMPLEST WAY TO PROTECT FAMILY LAND FROM TAXES

Fri, 28 May 2021 19:29:44 GMT

If your family has a strong tie to the land, you may intend to pass your property on to the next generation. Whether you grow crops for human consumption, produce commodity crops, graze livestock or farm trees, the land that you own is the crucial part of your family’s identity and legacy.

If you inherited a parcel that once belonged to your parents and possibly many other prior generations of your family, you probably want to protect that land so that it passes on to your children and then your grandchildren.

Many issues, ranging from you or one of your family members getting divorced to major estate taxes, could affect your family’s ownership of the land. Thankfully, there is a relatively straightforward way for you to limit the risk to your farmland.

TRANSFER THE OWNERSHIP OF YOUR REAL ESTATE INTO A TRUST

The simplest way to protect your acreage and other real estate holdings from the implications of estate taxation or a divorce is to not hold title to the property.

When you own the property directly, it is subject to taxation when it passes on to your family members if the value of the land is high enough. Your spouse can also claim partial ownership of the property if you get divorced. The same is true if you share ownership with your children or pass it on to them and then they divorce.

By creating a trust to hold the title to your land, you can potentially eliminate estate taxation on the property because it doesn’t pass as an inheritance from one generation to the next. Instead, the beneficiary of the trust or the person administering the trust changes. Additionally, if an individual does not directly own the farm or land, a spouse will have a harder time laying claim to the property itself or even its value during a litigious divorce.

IT'S ALWAYS BEST TO PLAN BEFORE THE NEED ARISES

If you wait too long to start planning where to move your property in a trust, you may not reap all of the possible benefits.

For example, creating a trust to protect the land from creditors or Medicaid recovery close to the time when you need benefits might leave the property vulnerable to claim. Moving real estate into a trust after someone gets married might be too late to protect the property.

Having the foresight to plan now for things that may only occur years down the road can help protect your property for the next generation.

HOW TO INCORPORATE REAL ESTATE INTO YOUR ESTATE

Mon, 01 Mar 2021 20:44:25 GMT

You have been fortunate and worked hard to get where you are today, and your estate has grown beyond what you imagined. You have several properties, and you have land that you want to preserve for your family’s future.

If you’re working on your estate plan, finding a way to protect those properties is essential. Fortunately, there are options that you can use, such as a joint tenancy or irrevocable trust, which will help protect your property and your beneficiaries’ inheritances.

WHAT HAPPENS TO REAL ESTATE WHEN YOU DIE?

When you die, several things can happen to your real estate. If you have a joint tenancy or more than one person on the mortgage, then that property may pass to the other party. If you have no will, then the intestate statute will pass it on to your next closest relative by law or follow other intestate guidelines at the time of your death.

If you want your real estate to go to someone specific, then it’s a good idea to put your will together and to add those wishes to it. You can place that real estate into a trust, such as a revocable or irrevocable trust, or you can use other methods to pass on those properties.

WHY IS IT IMPORTANT TO ADDRESS YOUR REAL ESTATE IN YOUR WILL AND ESTATE PLAN?

By addressing your property in your will and estate plan , you can reduce the likelihood of that property going to a beneficiary or heir that you didn’t intend to receive it. Additionally, by planning early, you can make sure that your estate’s value is minimized, which may help you avoid estate taxes. For example, if you add your real estate to an irrevocable trust, then that property won’t be included in the overall value of your estate for the purposes of estate taxes. This can save your heirs thousands of dollars, if not more.

Your attorney can go over a few different options for transferring property prior to death or at death with you. That way, you can select the method that makes the most sense for you and your beneficiaries.

ESTATE PLANNING CONSIDERATIONS FOR PEOPLE WITH COMPLEX ASSETS

Wed, 26 Aug 2020 21:46:49 GMT

When you make enough money to start saving for retirement or investing the money to earn a return on it, the advice from financial professionals is typically to diversify your holdings. Putting everything in stock, for example, would leave you vulnerable during an economic downturn that affects the stock market in a dramatic and negative way.

The more places you invest and store assets, the less likely you are to experience significant negative consequences due to economic factors beyond your control. However, when you hold assets in a variety of manners, you may need extra care when planning your estate .

Make sure you have a realistic idea of the value of your holdings

Whether you have money in fines, stocks, real estate or digital currency, the value of those assets will fluctuate over time. You need to have a solid understanding of their current value and their likely future value.

The greater the worth of your assets, the more planning becomes necessary. While the state of Texas does not assess an estate tax , the federal government does. If your estate is worth several million dollars, planning to reduce its value through giving or the creation of a trust will help you limit the estate tax liabilities for your loved ones.

YOU NEED AN EXECUTOR WHO KNOWS WHAT THEY'RE DOING

If you intend to have the executor of your estate liquidate some of your assets to distribute their value among your family members, you will want to make sure that the person in charge of your estate’s administration is someone competent at making complex financial decisions. Someone who doesn’t understand the assets you hold may have a hard time maximizing their value as an executor.

VALUABLE AND COMPLICATED ASSETS OPEN THE DOOR TO FAMILY CHALLENGES

People in your family may have unrealistic expectations about your estate because of its complexity. When people know that you have investment accounts or other complex assets, they may overestimate the value of your estate and anticipate receiving more of an inheritance than they do.

Individuals who feel slighted may be more likely to challenge your estate plan to try to get a bigger portion of the assets you leave behind. Taking steps to reduce challenges or to speak with loved ones before you pass can reduce the likelihood of unnecessary challenges and delays to your estate’s administration.

Careful planning and thorough consideration of your unique circumstances and assets can help you maintain control over your legacy now and after you die.