Most people in Maryland create an estate plan so that their wealth can go where they want it to go after they die. For many people, that’s to family members whom they care about. Here are some tips to increase the odds that the money you leave your loved ones won’t be eaten up by estate or income taxes.
Create a will
Creating a will is the first and most important step in the estate planning process. While this may seem obvious, the 2020 Estate Planning and Wills Study found that almost two-thirds of Americans don’t even have a basic will.
If you don’t write anything down about your final wishes, your assets will be dispersed through probate court based on intestacy laws. The probate process can take a long time, and your assets may not be divided in a financially strategic manner. Creating some type of will is better than having no will at all.
Update beneficiary designations
Updating beneficiary designations is one of the first strategic estate planning steps that you can take beyond writing a will. The beneficiary designations on your financial accounts can allow assets to be passed directly to your heirs, skipping probate. Make sure you use these designations wisely wherever you can.
Use gifts strategically
Many people with large estates use gifts strategically during their lifetime to cut down on estate taxes. Every year, the IRS allows a certain amount of tax-free gifting to each person. You may choose to do strategic gifting to family members or by donating to charity.
Just remember that while giving away liquid assets can be a smart move, gifting assets that appreciate in value isn’t always wise. For example, when it comes to giving real estate to someone as a gift, you may want to talk to a financial advisor about the tax consequences.
Set up a trust
Trusts can be set up for all different reasons, and making sure that your wealth stays in the family is a good one. If you’re interested in creating a trust to protect assets from the estate or income taxes, you may want to speak to an estate planning attorney.