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Tax Strategies

Minimizing Tax Liability

Following are some strategies to minimize your tax liabilities.

Life Insurance Policies

Life insurance policies are one way to pass assets to your heirs without tax responsibility. To be effective, the policy must be owned by someone other than yourself, ie., naming your heirs as the owner. You could purchase a policy now and name one of your children as the owner of the policy. If done properly, upon your death the proceeds of the insurance would not be considered an asset in your estate and no tax would result.

There would be no waiting period if a new policy is purchased, however, if you have an existing policy and you changed ownership to your children, you must then live three years past the transfer in order for the proceeds not to be considered part of your estate.

As with any other tax stategy the drawback is that once you have made someone else the owner, you can not control the policy and can not change the beneficiary. However, in the right circumstances, this is a valuable tool to allow substantial amounts of money to pass from one generation to another without being taxed.

Planned Gifting

Another method that is being used by a lot of people, particularly those who have sufficient assets to care for their needs is the gifting of $10,000 to other beneficiaries. Each person is allowed to give away $10,000 each year to as many different people as they want without any tax obligations for either party. Because this is not cummulative, the $10,000 may be given year after year. A husband and wife may jointly gift $20,000 to as many people as they like.

This is a good strategy to use for a long period of time to reduce your estate below the figure for which Federal Estate taxes are required. This strategy can also be used in the short term or when a person is near death and has not made other plans.