When we die, most of us leave behind a fairly substantial and intricate web of assets and liabilities, including money, our home and our other possessions. In most jurisdictions, there arises a liability to tax on death that must be borne from the totality of the estate, and this can lead to a significant reduction of inheritance for our loved ones. Having said that, there are a number of ways in which liability to tax on death can be vastly reduced whilst still ensuring sufficient legacies and provisions mortis causa. In this article, we will look at some of the most salient ways in which one can seek to minimize his estate’s liability to tax on death, and ways in which careful planning can help increase the legacies we leave behind.
The one primary reason behind tax liabilities on death is neglecting to plan and consider the legal consequences of the estate you leave behind. Though death, of course, comes unexpectedly, you do not have to saddle your loved ones with tax liabilities that come from provisions in your will that are only fulfilled after your death. It is a good idea to get advice from an attorney regarding sensible estate planning. This would help ease the financial burden on the people you leave behind.
If you intend to leave legacies to family members of a specific quantity or nature, it may be wise to do so at least a decade before you die, which will ultimately divert any potential legal challenges upon death which would give rise to tax liability. Obviously there is seldom any way to tell precisely when you are going to die, but making legacies at least a decade beforehand avoids any liability that might be attached on death. In effect, donating during your lifetime well before you die means you can still provide for your family and friend without having to pay the corresponding tax bill.
Aside from donating your assets, you may also divest yourself of your assets while you are still living in the form of gifts to your friends and family. One classic example is to transfer the ownership of your house to your children, or to place the house in a trust with you as the beneficiary. This enables you to remain the functional owner, while legally classifying the property as no longer a part of your estate. This would effectively avoid tax liabilities on your house on your death. What you have to keep in mind is that these transferring of assets must be done not just before your death, but well in advance of your death. This is the sure way to prevent legal challenges from arising concerning your estate and to minimize inheritance tax liability.
It is unfortunate that aside from the emotional toll of dealing with death, bereaved family members would still have to face immense tax liabilities from the estate you leave behind. For sure, there would be problems that would arise in the transferring of property ownership, as well as the shouldering of tax liabilities. The most prudent way to avoid these challenges would be through careful estate planning and garnering of trustworthy legal advice.
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