≡ Menu

How to Save Money on Estate Taxes

In 2013, there is no federal estate tax on the first $5,250,000 of an estate, with the rest of the estate being taxed at the rates of up to 35%. Settling up an estate plan can help you save money on estate taxes and defer paying the estate tax for as long as possible.

Here are some of the ways in which our law firm can help families pass on the estate without exessive tax liability.

1. Leave Some Property to Your Spouse or to a Charity

Leaving property to your spouse or to charity is the simplest way to save on estate taxes.


If you have an estate worth $5.2 million, you can leave $100,000 to the charity of your choice and leave the other $ 100,000 to your spouse. You would not have to pay estate taxes on the total of $.2 million you left to charity and your spouse, and you will not have to pay estate taxes on the $5 million remaining estate because it would be covered by the estate tax exemption.

Estate Tax: 0

2. Lifetime Gifts

In the year 2013, you can give up to $5,250,000 estate and gift tax-free.

If you go over that exemption, you can gift $14,000 per person per year tax-free. A couple can gift twice as much. Let’s say you and your spouse have 3 children and 1 grandchild. You can gift them $112,000 a year tax-free. Any amount over this will be subject to the gift tax.

If your children are still young or are unable to manage money, you can still take advantage of the $14,000 per person per year gift tax exemption by leaving the money for your child in a Crummey Trust. The Crummey Trust is a sort of a limited gift that is substantially delayed until the date of your death.

As an added benefit, lifetime gifts remove future appreciation of money from your estate. For example, if you gift $14,000 to your child now (or place the money into a Crummey Trust for your child’s benefit), and the money is invested and grows to $35,000 by the time you die, you have effectively transferred $35,000 to your child without paying any estate tax.

3. Life Insurance Planning

If not planned correctly, the proceeds of your life insurance can be included in your taxable estate. If the IRS finds that your life insurance is payable to your estate, or you’ve retained some indicia of ownership of the policy during your lifetime, the proceeds of the life insurance can be taxed as part of your estate. For a $5 million policy, you can end up paying more then $1 million in federal taxes alone, and that’s if the policy is the only asset you have. If you have other assets that use up your $5 million estate tax exemption, you will pay more then $1 million in estate taxes for your insurance policy. An experienced estate attorney can avoid those consequences by reviewing a life insurance policy and making the appropriate changes.

An Irrevocable Life Insurance Trust (ILIT) can be set up to own the life insurance policy, so that when the insured person dies, the proceeds of the life insurance will not become a part of the taxable estate. The insured can still pay the premiums by a “Crummy gift” to the trust. The downside of the trust is that the trust cannot be changed since it is irrevocable. The upside – no estate taxes (if set up the right way).

A Life Insurance Trust is also an important estate planning tool. It holds your life insurance for the benefit of your beneficiaries. After three years the Trust would be deemed the owner of the policy, so as to minimize and chance that your estate will pay estate taxes on the proceeds. It also ensures that any appreciation of the life insurance policy is kept out of your estate. As a note of caution, a Life Insurance trust has to be carefully drafted by an experienced estate attorney to meet exacting IRS requirements.

Call the Law Offices of Albert Goodwin at (212) 233-1233 and make an appointment to discuss your estate planning needs.