Estate and Gift Tax Attorneys in Hot Springs, AR Assisting Clients with Tax Planning
After spending a lifetime earning and saving in order to be able to leave an inheritance for your loved ones, the last thing you want to think about is some of your hard-earned money going down the drain for gift or estate taxes. The good news is that Arkansas does not have an estate tax. There is a federal estate tax, but it only applies to very large estates—valued at more than $12 million. Even those with estates large enough to incur estate taxes have options available to reduce the tax burden. If you inherit property in a state that does have an estate tax, you may owe the tax in that state, however. The one time an heir will have to pay any taxes at all on inheritance in Arkansas, assuming the assets inherited are in Arkansas, is if they inherit retirement accounts and withdraw assets from them. These funds will be subject to income tax, though other parts of the inheritance are not.
As for gifts, there is no federal tax for gifts of $15,000 or less, and Arkansas does not have a tax on gifts at all. Gifts over $15,000 must be reported to the Internal Revenue Service (IRS) and will be taxed. Gifts totaling more than $15,000 in one year will also count against your lifetime gift tax exemption of $11.8 million and decrease your federal estate tax exemption.
Call Dudeck Law Firm today at 501-327-3527 to have your gift and estate tax questions answered.
If My Estate is Large Enough to Be Taxed, Are there Ways To Reduce the Burden?
IF your estate is over $12 million, there are a few strategies you can employ to reduce the size of your estate and, thus, reduce or eliminate any estate taxes owed. Here are some examples of strategies that have been successful for the owners of large estates to reduce their estate value, therefore reducing their estate tax. This is not a comprehensive list, and you should contact an experienced Hot Springs estate planning attorney for more options.
- Charitable Giving: One way to reduce the size of your estate for tax purposes is to give some of it to a charity that you would like to support.This can be done directly or through various types of charitable trusts.
- Gifts: You may give up to $15,000 per year to any number of people without tax to them or to you, up to a limit of $11.8 million in your lifetime. If you are leaving most of your assets to your children, for example, it might be wise to start giving them $15,000 a year for several years, especially since it is money they will inherit eventually, anyway.
- Trusts: There are several types of trusts that will transfer ownership of assets out of your estate. Speaking to a skilled estate planning attorney can help you understand all of your trust options. One to think about is an irrevocable life insurance trust. This will result in life insurance proceeds going directly to beneficiaries instead of being added to your estate.
- Pay Medical Bills or Tuition for Heirs: If you pay medical bills or tuition directly to a medical facility or school, that amount will not be taxed and will not count toward the $15,000 gift limit or reduce the federal estate tax exemption.
- Establish a Family Limited Partnership: If you have family-owned businesses or properties that you want your children to inherit, you can set up a family limited partnership. As the general partner, you’ll still be in charge, but you won’t be the sole owner. Therefore, only a portion of the value will be included in your estate.
Do I Need an Estate Plan if My Estate is Smaller than $12 million?
Don’t be fooled by the fact that estate taxes are not an issue unless you have millions of dollars; you still need an estate plan. Avoiding taxes is far from the only reason for careful estate planning. Even those of modest means need to think about things like who will get the family home or life insurance proceeds; who will take care of their business, legal, and financial matters if they should become incapacitated; who will have the right to speak for them in decisions about medical care if they can’t speak for themselves; how they will pay for long-term care in a nursing home if needed; how they will provide for disabled family members…
The list of concerns addressed by estate planning goes on and on, and estate and gift tax avoidance is only one small part of it, affecting a very small sector of society. No matter the size of your estate, it is advisable to have a comprehensive estate plan, including a will, durable power of attorney, health care power of attorney, advance health care directive (living will), and other documents in place so that your wishes are followed, and your loved ones are taken care of if the worst happens.
Will My Heirs Pay Income Tax on Their Inheritance?
For federal tax purposes, inheritances are not considered income whether you inherit cash, investments, or property, and Arkansas does not tax inheritances at all. However, any subsequent earnings on the inherited assets are federally taxable in most cases. The interest income from inherited cash and dividends on stocks or mutual funds that you inherited must be reported on your income tax return, for example. Income tax will also be due on any assets that are withdrawn from inherited retirement accounts.
Why Should I Hire Dudeck Law Firm?
While some law firms spread their attorneys thin over a wide range of practice areas, at Dudeck Law Firm, we focus on estate planning and elder law. Our experienced attorneys spend their time immersed in these topics, and our knowledge is both wide and deep. Call Dudeck Law Firm today at 501-327-3527 to explore your estate planning options.