Individuals and families with a high net worth often have to pay a significant amount of taxes on their estate under U.S. tax law. However, there are bigger estate tax credits on the way for estates in 2014, according to the Motley Fool.
For example, the unified estate and gift tax exclusion amount is expected to increase from $5.25 million to $5.34 million. Additionally, the federal foreign earned income exclusion edged higher to $99,200, compared to $97,600 in 2013. General annual gift exclusions will have a new cap of $14,000, a significant jump from the $10,000 exclusion seen in 2000.
By taking advantage of these credits and deductions, individuals and families can reduce their tax bill. There are also other ways to lower estate taxes, including:
Create an Intentionally Defective Grantor Trust: According to Forbes, an IDGT is a trust that allows transferred assets to be moved from an estate for estate and gift tax purposes, but not for income tax purposes.
Married couples should take advantage of both exemptions: Each U.S. citizen is entitled to an estate tax exemption. Married couples are able to take advantage of both exemptions, which can reduce their estate tax bills, according to EstatePlanning.com. This may seem like a simple step to take, but many taxpayers may not be aware they are afforded both exemptions.
Give tax-free gifts: Each year, U.S. tax law allows people to give tax-free gifts. These can be up to $13,000 – $26,000 if married – to as many recipients as a taxpayer wishes. By completing this step, people are able to reduce their estate tax bill.