Your inheritance may get unnecessarily wasted if you lack a proper estate plan. Worse still, your legacy might not fall into your intended heirs’ hands. Therefore, it’s crucial to have an estate plan that protects your property and money. Additionally, you could use estate planning to save money.
Here are ideas in estate planning that save you money.
1. Set up a trust
When you have a sizable estate, it’s wise to set up a trust. Also, appoint your trustee who will distribute your wealth. Since the money in trust no longer belongs to you, the money won’t be subject to estate taxes. Again, you can create stipulations about the faith, although the trustee controls the trust. However, setting up a trust is a complex issue. Therefore, consult an attorney who specializes in estate planning services.
2. Deduction maximization
One of the benefits of estate planning is that all actual or paper expenses are tax-deductible. Thus, deduct costs such as insurance, legal fees, or other deductible estate costs. The deductions will reduce your estate’s total taxable income and save on taxes. However, do thorough research on your tax deductions and consult an accountant.
3. Holding a property for more than a year.
If you own property for less than a year and sell it at a profit, you get taxed at your average income tax rate. Also, the IRS might still classify you as an unemployed dealer for flipping one or more properties in a year.
Thus, your income will be subject to double FICA taxes, hence losing your estate planning. Fortunately, by holding your property for more than a year, your profits will be taxed as capital gains. Moreover, your IRS risk will be avoided.
4. Recognize Appreciation by Borrowing, Not selling.
When you buy property, over time, its value will appreciate. Therefore, your property will have built equity. Thus, you can sell the property to pay capital gains taxes on the equity. You may also decide to borrow against your property. If you borrow, you’ll not pay taxes on your cash in hand.
Instead, you’ll deduct your borrowing expenses and the mortgage interest of your estate.
Better still, your property will continue appreciating; thus, rent will rise with time. And your mortgage interest payment will remain fixed.
5. Draw up a will
Your will is an essential document in estate planning that details how your estate shall be apportioned. Without a Will, you’ll be subjecting your property to a probate court. Thus, someone else will decide who gets your property. Worse still, the process will be slow and expensive without any will.
Therefore, draw up a will and document it with an experienced estate planning lawyer to ensure validity. You’ll be saving on costs and, most importantly, a private way of transferring your property.
Conclusion
To win the game of wealth, learn the art of effective saving. And estate planning is critical in saving your wealth. Do you want to leave your children with a good inheritance of your estate? Practice the above-discussed points.