Real Estate

How To Effectively Use Federal Gifts & Tax Exemptions For Property

Everyone has to pay their taxes, but there are some instances and legal procedures that people can take to avoid paying certain taxes. There are also various instances where people can be exempt from taxes. These exemptions can really help people trying to resolve the transferring of property which property taxes can only exacerbate.

It’s also important for property owners to understand the certain privileges they’re rightfully entitled to by law. For those looking to reduce their property taxes, continue reading because we’ll touch upon the methods commonly used for tax exemption.

Consulting an attorney is the best place to start, especially if you are looking to find out your tax exemption rights. Attorneys are experts in the different aspects of the law and they’ll walk you through the various legal procedures correctly. This step alone can save you time and money because if legal documentation isn’t filed correctly, it only complicates the process. One recommendation that experienced lawyers give their clients is to form an exempt trust or a tax-exempt trust.

This trust is a method wealthy families use to accumulate large quantities of money and have it secured by reducing or completely eliminating estate taxes all together as they’re being transferred at the time of the owner’s death. Also known as the bypass trust, couples can place property and assets into this trust and upon their deaths, the assets will be distributed accordingly to the beneficiary, most commonly the testator’s children or surviving spouse. Being that the beneficiaries didn’t receive the assets or property directly but through a trust, they are exempt from federal taxation.

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The same procedures can be applied to gift taxes. According to the Internal Revenue Service (IRS), a gift is a transfer of assets, property, or money to another person without any or equal compensation.

This estate tax exemption is not as easy as filing a petition; there are many requirements that testators or the people writing trusts must satisfy before they can actually take advantage of it. We’ll focus on this in the following section.

Tax Exemption Stipulations

To begin, this tax-exempt trust is considered irrevocable, which means that neither the testator nor the beneficiary can cancel the trust; once it has been finalized, it’s very hard and expensive to revoke.

Irrevocable trusts have always been kind to people when it comes to taxes; being that property owner no longer has control over the assets and property, they don’t have financial responsibility for them either.

This is the place where an experienced estate tax exemption lawyer is useful; clients need proper guidance to file these trusts correctly, as mentioned above; it’s not the easiest process getting the government to exempt people from pay a hefty tax. Having the right lawyer by your side will not only help you do things correctly but give you peace of mind at the same time.

Another stipulation that testators and beneficiaries must abide by is the exemption limit that they must not exceed. The government has implemented an $11 million tax exemption limit on assets that are going to be inherited. This means that if the value of the assets is under $11 million, you won’t get charged an estate tax fee, but if it is, you have to pay.

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There are also some stipulations that exempt people from having to pay gift taxes; this exemption depends on who these assets or property are being transferred to. Some of these exempted transfers include giving to a charity who’s approved by the IRS, transferring assets or property to a spouse if they’re a U.S. citizen, educational tuition to the student, and to political organizations. Everything else gets taxed.

Estate Tax & Gift Exemption Benefits

Besides saving time and money, there are many benefits that beneficiaries can obtain when their assets are protected by a tax-exempt trust. This was designed to benefit the spouses of the testators, specifically in the aspect where the spouse has life-long control over the assets and property once the testator has died.

The spouse or beneficiary of the assets get a reduction of tax rates because of the trust, and thus the financial responsibility of the assets and property, are transferred to a trustee or a person who keeps the tax-exempt trust safe. Part of the trustee’s duty is to keep the trust closed until the testator’s death; once the testator has died, the trust is opened and the assets and property are transferred to the spouse. Once the spouse has died, the assets and property are distributed to their children.

When it comes down to giving away gifts, there is a limit to how much a person can give away in their lifetime. The lifetime exclusion is currently $11.4 million, this means in the course of a person’s life, they’re allowed to give away this amount under the circumstance mentioned above; if it goes over, the donor will have to deal with the IRS and maybe pay a tax.

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This same strategy also applies to yearly gifts. A person can give away $15,000 per year and not have to deal with the IRS; now, if a donor goes over this limit, they’ll have to pay a tax for any future gifts.

There are many instances in which people can be exempt from paying a hefty tax when they’re transferring property or assets to beneficiaries; this is usually done through the help of an experienced lawyer and trusts which protect one’s assets and property from taxes and creditors. This trust is designed to benefit the spouse and the family of the testator because they’re are not grabbing these things, they’re being inherited to them, which excludes them from being taxed.

It’s important that property owners understand their rights and take full advantage of what the law acknowledges and grants. By following the stipulations mentioned above, you can save money and expenses at the time of a property owner’s death, and most importantly, these trusts give peace of mind to the grieving family.

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