As inflation has risen, many Americans are all too familiar with the increased cost of living. However, one overlooked effect of inflation is the rate at which estates and gifts are taxed. Estate taxes, gift taxes, and the valuation of real property in a decedent’s estate can all depend on IRS adjustments for inflation. As a result, the ultimate tax rate on your estate may rise or fall with inflation, leading to unpredictability for your beneficiaries. Fortunately, you can apply several tax strategies to protect your estate from fluctuations in the tax rate.
How Can I Use Tax Laws to Plan My Estate?
A recent Forbes article highlights several provisions in tax law that can help you with estate planning during inflation. First, take advantage of the increased lifetime gift tax exemption and generation-skipping transfer (GST) tax exemption. The lifetime gift tax exemption allows you to give away a large monetary amount in gifts throughout your lifetime without triggering taxation. The GST tax applies to inheritances that “skip” a generation (i.e., from your children to your grandchildren). The exemption allows you to set aside nontaxable gifts to benefit a grandchild, such as college tuition. In response to rising inflation, the IRS has increased the lifetime gift and GST tax exemption amounts. As a result, a higher monetary amount is now exempted from gift and GST taxes. To take advantage of these exceptions, you may consider giving a gift to your beneficiaries while they are still alive to reap the benefits of the increased exemptions.
If you are considering a gift to your beneficiaries while you are still alive, consider a gift in the form of appreciating assets such as stocks or real estate. Appreciating assets are a wise financial decision for two reasons. First, by gifting an appreciating asset while you are alive, your recipients can avoid estate and gift taxes on the asset. Second, as the asset appreciates, your recipients can take advantage of their increased value.
Finally, use a grantor retained annuity trust (GRAT) or charitable lead annuity trust (CLAT). A GRAT allows you to transfer assets to a trust and receive an annuity for a certain fixed time period. A CLAT allows you to transfer assets to a trust that pays an annuity to a charity for a fixed time period. When that time period ends, beneficiaries receive any remaining assets in either trust without paying taxes. Using these strategies, you can use inflation to your advantage and maximize the amount your beneficiaries receive.
Speak With a Boulder Estate Planning Attorney Today
Rising inflation may affect your estate planning strategy. To understand your best options, contact the Boulder, Colorado estate planning attorneys at Braverman Law Group today. Our attorneys can help you develop a gift and estate plan that takes full advantage of current tax rates. Whether you plan to form a trust or give a generous gift, we can help you maximize the amount your beneficiaries will receive. To schedule a free, no-obligation consultation with an attorney on our team, call us today at (303) 800-1588.