For some people, the estate planning process is very simple. They draft a will instructing their personal representative or executor to distribute all of their property to immediate family members or other beneficiaries. Other times, testators establishing estate plans need to create more comprehensive documents.
For example, they may want to establish trusts or take steps to keep certain resources out of the probate courts after their passing. The possibility of estate taxes can motivate people to expand their estate plans.
Estate taxes can significantly reduce the resources that people pass to their loved ones after they die. Individuals with valuable property who expect to have sizable estates when they die may need to plan in advance to minimize estate taxes.
When are estate taxes a concern?
Testators in Mississippi only have to worry about federal estate taxes. The state does not currently collect an estate tax. The federal estate tax can significantly diminish the value of an estate, as the maximum tax rate that could apply is 40%.
If the estate contains assets worth $13.99 million or more, then the estate could be responsible for federal estate taxes. The more the value of the estate exceeds the federal exemption threshold, the higher the tax rate that applies.
How do people reduce estate tax liability?
Typically, the personal representative of an estate is not in a position to reduce estate tax liability. Prior planning by the testator is the only way to minimize their estate tax obligations. Some people make regular gifts to their loved ones to diminish what their estate is worth before they pass.
Others choose to take on co-owners who can assume control over valuable assets when the testator dies. Transferring property to a trust is another common tactic used to diminish the value of an estate and therefore reduce the likelihood of costly estate taxes. The strategies used to minimize estate tax liability can also help protect assets from creditor claims and may even reduce the risk of people contesting the estate plan in probate court.
Reviewing personal resources can help people identify whether they are at risk of estate taxes. Robust estate plans can help people minimize taxes and other liabilities that could diminish what their beneficiaries eventually inherit.