Estate Planning Strategies To Secure Your Assets And Reduce Taxes

What is Estate Planning?

The aim of estate planning is to protect and preserve your assets, and ensure that they are handed over to your beneficiaries in the most effective manner.  There are various strategies and tools which can be used to effectively protect your assets and minimise the taxes which your estate incurs. Estate planning strategies can include the use of insurance policies, annual gifting, trusts, charitable donations, and various other tools. 

Due to the complex nature of each estate and the individual’s specific set of circumstances, estate planning should be properly tailored to your own unique needs and your family’s situation. Therefore, in setting up an effective estate planning strategy, it is important to seek expert guidance. An estate planning professional can help you chose the best strategies for you and your family, and help you to properly implement them.   

Before you even begin consulting with an expert in estate planning, it is useful to be aware of some of the most effective estate planning strategies which countless have used with success, and which can be further refined to suit your own specific needs and goals. 

Table of Contents:

• What is Estate Planning?
• Estate Planning Strategies To Ssecure Your Wealth
• 1. Minimising Taxes
• 2. Annual Gifting
• 3. Life Insurance
• 4. Trust Funds
• 5. Wealth Protection
• 6. Business Succession Planning
• 7. Updating Will
• The Importance of Managing Your Wealth With Estate Planning Strategies
• Ongoing Support

Strategies To Secure Your Assets and Reduce Taxes

Here we have listed some of the most important strategies and considerations for effective estate planning:

1. Minimising Taxes

Reducing the taxes which your beneficiaries will have to pay on your estate is fundamental to any successful estate plan. There are various tools and strategies which can help you do this. These include:

• Using trusts: Trusts are a far more tax efficient way to pass on your estate to beneficiaries, especially if structured in the right way. Furthermore, the benefits of trusts extend beyond just taxes (more on this later).
• Marital deductions: In the US, surviving spouses receive a full tax-exemption on the estate of their deceased spouse, provided it is below the federal limit of USD 11.58 million.
• Charitable contributions: Passing on part of your estate to charity, or specifically creating some kind of charitable trust, is a highly effective way to reduce taxes through tax deductions. This can also be a great way to leave behind a legacy and help some charitable causes which are dear to you. 

2. Annual Gifting

Annual gifting is another effective way to reduce the overall taxes on your estate. It also gives your beneficiaries the benefit of receiving part of your estate early, and allows you to have the joy of gifting it to them while you are still alive. 

You can freely gift tax free up to an amount of USD 15,000 per year. It is also possible to set up special types of trusts (e.g. a Crummey Trust), which allow you to “gift” directly to the trust for your beneficiaries to withdraw at a later stage. These contributions would also benefit from being tax free.  

3. Life Insurance

One of the primary risks which your beneficiaries face when inheriting your estate is being burdened with hefty estate taxes which they do not have the means to cover due to poor estate planning. For example, having too many illiquid assets in your estate. 

One way of protecting against such risks is to have an effective life insurance policy. It is important that the policy is structured in the right way. If you own the policy in your own name, it will end up being part of your estate when you die, which wouldn’t solve the original problem. This issue can easily be solved by housing the policy within an Irrevocable Life Insurance Trust (ILIT). 

Covering taxes is not the only benefit of life insurance policies. They can be effective tools on their own for providing for your beneficiaries in the event of your death. However, it is also important to make sure that you do not ‘over-insure’ by spending a lot of money on different insurance policies which you don’t actually need. 

4. Trust Funds

Trust funds are extremely powerful and versatile estate planning tools. They come in many different forms, each with their own uses and benefits. There are asset protection trusts which help you to keep your estate safely guarded from greedy hands. There are various estate trusts which can be used for tax planning and optimise the process of handing over the assets to your beneficiaries. 

Trusts also enable you to have more control over when and how your assets are distributed to your beneficiaries (for example, trust funds for minors which are only distributed when the beneficiary reaches the age of 21). This can help you better manage your estate distribution to suit your specific circumstances and take heed of the characteristics of your beneficiaries. Trusts can even be used to circumvent forced heirship laws. 

It is highly advised to seek guidance from a qualified asset protection attorney when dealing with trusts due to their complex nature.

5. Wealth Protection

While planning your estate, you need to also consider the importance of protecting your assets while you are alive. It is no good having the perfect strategy for handing over your estate one day if it is worth nothing when that day comes. For this, you need to make use of sound financial vehicles and expert guidance to nurture and protect your wealth while you are alive. 

6. Business Succession Planning

If you own a business, you have to prepare for passing it on in the best way possible when the time comes. This involves planning who the successor will be, the succession risks involved, financial aspects of the transition, and other factors. Effective business succession planning can have a major positive impact on your overall estate value and how it is passed on to your beneficiaries one day.

7. Updating Will

Acknowledging the fact that circumstances are constantly changing, including your family, the nature of your estate, your personal goals etc., it is important to ensure that your will is up-to-date and reflects all of these changes. It is advised to periodically review your will with a professional who can help maintain it so that it optimises taxes, isn’t exposed to too much risk, and avoids other pitfalls which you may have missed as circumstances change. 

The Importance of Managing Your Wealth & Assets

While forming the perfect estate planning strategy, you need to integrate your entire wealth management plan. There are so many different aspects to estate planning, and it requires taking account of all of your assets and wealth. During the process of planning your estate and retirement goals, you may even realise the need to make changes to your wealth management strategy today so as to optimise for the future. 

Ongoing Support

Your estate plan should be constantly evolving and adapting to reflect your current circumstances, needs, and goals. It is not a static strategy which you create once and then forget about it. It is therefore important to regularly review and update your strategies. In addition to changes in your own situation and requirements, there are external changes such as economic influences, regulatory changes, and so forth. You need to be able to stay updated with all these developments and adjust your strategies accordingly. 

In order to be able to adapt your estate strategies so as to provide the optimal estate plan, it is best to seek ongoing expert support. Having a trusted professional to regularly advise you on your estate plan is therefore invaluable for anyone who wants to ensure the best possible outcomes for their estate and beneficiaries.