Ways You Can Avoid Inheriting an Estate Tax Bill

 Why you need an estate plan – even if you don’t pay the estate tax

The estate tax is a hot topic in the news right now with a lot of speculation about the role it may play in tax reform. The tax has been repealed three times since it was introduced more than 90 years ago.

The tax impacts individuals who inherit an estate worth more than $5.49 million, or couples who inherit an estate worth more than $10.98 million. Twelve states also have estate taxes so depending on how much you inherit and where you live, you could be subjected to a federal and state tax bill.

Avoid triggering the tax

So how can you avoid “inheriting” an estate tax bill? Jim Stanziola, Infinitas advisor, said the most common ways to avoid triggering the tax are in the form of a gift:

  • Gift money to heirs. You can gift up to $14,000 per person, per year to your heirs – or $28,000 annually for a married couple. This will reduce your taxable amount without subjecting your kids to a tax bill.


  • Gift a 529 college savings plan. 529s score high marks as one of the best ways to save for college. For each student, you can set aside $14,000 individually or $28,000 as a couple, each year. The student doesn’t have to be your child so grandparents, siblings, relatives and even friends can all contribute to the 529 – each with their own $14,000 limit.


  • Gift a business or other asset. Moving appreciating assets from your estate to the next generation can help reduce your estate tax bill. Annual gift exclusions and lifetime gift exemptions are ways to do this without paying any gift tax. You can also take advantage of valuation discounts on business-related assets.


  • Gift assets to charity. In your will, you can direct stocks, real estate, cash or other assets to a qualified charity. Assets directed to a charity during your lifetime or at your death are exempt from transfer taxes. You may also qualify for an income tax deduction during your lifetime.

Stanziola said you can move up to $5.49 million in assets out of your estate in the form of a gift. Also, the assets from a life insurance policy in an irrevocable trust can be used to cover the costs of an estate tax bill.

Estate plans minimize tax – and family – burdens

Since a lot of people won’t inherit more than $5.49 million or nearly $11 million as a couple, they won’t have to pay the estate tax. That leaves many thinking they’re off the hook when it comes to estate planning.

Not so, said Stanziola. Even if you don’t hit the estate tax threshold, you still need an estate plan.

“There’s more to an estate plan than strategies for offsetting the estate tax,” said Stanziola. “Drafting a will, creating a trust to protect your assets, and identifying a durable power of attorney for health care and financial decisions, will help secure your assets and give you peace of mind. Taking these steps now will help minimize your tax burden and maximize the value of your estate.”  

Stanziola said an estate plan also does a big favor for your loved ones. “It keeps your assets out of probate and the hands of the court, saving your heirs a lot of time, money and grief after you’re gone.”

No one knows if the estate tax will be repealed a fourth time and that can make tax planning tough. Stanziola said you should revisit your estate plan from time-to-time to make sure it accounts for new goals, assets or life changes.

“Regardless of whether the estate tax stays or goes, there’s one thing that won’t be repealed: the need for all of us to have an up-to-date estate plan.”

Want to learn more about creating or updating your estate plan? Let’s talk: [email protected].