No one would wish their relatives to pass away quickly – we would like to enjoy life with them the longest that’s. Sadly, the tragic moment of our family member’s death eventually comes one day, and apart from experiencing mourning, we have to take care of all the paperwork and formalities connected with death. Inheritance issues are one of them. Sometimes they can be really complicated, as the deceased may divide the heritage between several people, and even if it’s not the case, you still have to pay the inheritance tax. The amount that needs to be paid is sometimes high and not really profitable. But apparently, there are some legal possibilities in which you can avoid paying inheritance tax. What are they?
Setting up a trust
In order to avoid paying the inheritance tax, convince your elderly relatives to put all their assets into a trust. This way, they will pass these assets to beneficiaries without probating the will. The disadvantage of this solution is the fact that it must be done in advance, that is before your relatives’ death. However, they should avoid putting their assets in joint names with the children, as it may even increase the inheritance tax.
Consulting a financial adviser
Financial issues can sometimes be so complicated that it’s challenging to resolve them one’s own. That’s why consulting a professional financial adviser is always an advisable option. They will analyse every situation individually and suggest all the possible solutions. Moreover, it’s a good idea to get in touch with a lawyer specialising in heritage issues. There are also some organizations specialising in probate laws and processes linked to them – check out, for instance, Idaho Probate Code.
Giving some money away
If a person from your family is expecting to leave their heritage soon, they can consider giving some money to their relatives on a regular basis. In this way, the assets will not be high enough to make paying the tax obligatory. A drawback of this solution may be the fact that the heritage is divided into small parts, so the heritage income will not be that high at once.
Leaving money to charity
Another way to avoid the inheritance tax is giving money to charity. If a family member leaves the heritage to charity in their will, this sum is exempted from the tax. To reduce the tax, it’s also possible to leave a part of the net estate to charity – if this sum equals 10% of the heritage, the tax is lowered from 40% to 36%. It may not seem an ideal solution if you wish to avoid paying the tax completely, but still, it lets you save up a little.
Leaving estate to the spouse
If a family member’s spouse is still alive and in good health, the money may be given to them. The spouse never pays any inheritance tax, so they may then distribute the funds to the desired inheritors. Apparently, the same goes also for civil partners.
Stating ‘a deed of variation’
A deed of variation is a legal term that suggests giving out the possibility of altering the will to the future inheritors. They can, therefore, manage the heritage within two years after getting it. The money can be, for example, re-directed to a person who can afford to pay the inheritance tax or furtherly divided. If the heritage is divided between several relatives, it may not reach the inheritance tax threshold, so it won’t be necessary to pay it.
Consulting a financial adviser
Financial issues can sometimes be so complicated that it’s challenging to resolve them one’s own. That’s why consulting a professional financial adviser is always an advisable option. They will analyse every situation individually and suggest all the possible solutions. It’s also a good idea to get in touch with a lawyer specialising in heritage issues.
Taking out life insurance
Taking out life insurance doesn’t guarantee a reduction of the inheritance tax, but it guarantees a significant amount of money received by the family after one’s death. Then, it will be relatively more painless for them to cover the inheritance tax without ruining their budgets. It’s necessary to make sure, though, that the life insurance payout goes into trust so that the family can take it.
Changing the house ownership
Usually, when families own a house, they hold it ‘jointly and severally’, which means that one spouse inherits the whole house after the death of the other one. If the ownership is changed into the ‘tenants in common’ system, though, it lets the inheritor furtherly divide the heritage between different family members. The chance of paying the tax and its amount is then reduced.
Although paying the inheritance tax seems to be inevitable, there actually are several methods to avoid. It’s worth remembering, however, to take care of this issue far in advance – no one wants to be surprised with a huge tax to pay. The way of reducing or avoiding the tax needs to be adjusted to the family status and all other individual needs. The best option is, in general, to consult a lawyer and a financial specialist who will be able to provide some professional and reliable guidelines.
