Do you need to worry about estate taxes for your loved ones?

| Aug 7, 2020 | Estate Planning

When you die, your estate will constitute the legacy that influences how people remember you. You want your legacy to be uplifting and positive, not a source of struggle and frustration. Inadequate estate planning, especially for those with substantial resources, can lead to an unfortunate scenario where their loved ones receive far less of an inheritance than they had planned for or hoped.

If your estate is large enough to qualify for estate taxes, taking steps now to minimize the value of your estate or the amount subject to taxation will protect your legacy and the people you love.

South Dakota doesn’t collect estate taxes, but the federal government does

South Dakota is one of the majority of states that does not assess a state-level inheritance tax. Neither the estate itself nor the beneficiaries of the state will generally have to pay any state-level taxes on the assets that passed from one generation to another.

However, if your estate is worth more than $11,580,000, it will be subject to federal estate taxes. The federal estate tax is progressive, which means the greater the amount over $11,580,000, the higher the tax rate your loved ones will have to pay on the estate.

Gifts or transfers of ownership can help you reduce tax risks

If you have physical possessions that you value but no longer have use for or financial resources that could help your children and grandchildren establish successful lives, there’s no reason to wait until you die to pass those assets along. You can engage in planned giving to your loved ones throughout your life in order to minimize the taxes your estate will face by reducing its total value to less than the exempt amount.

If you aren’t comfortable with the thought of diminishing your estate by giving control or possession of assets or financial resources to family members while you are still alive, using those assets to fund a trust can be a great solution. For example, if your family owns a large ranch or farm, transferring the property and any machinery that you own into a trust will make it easier for those assets to pass to the intended recipient and reduce the tax burden for your estate.

Families will have different meanings depending on the assets, the family relationships and many other factors. The sooner you begin planning to reduce your tax burden, the more successful you will likely be.