Estate taxes can have a significant impact on your estate plan. It's essential to understand how these taxes work and how to minimize their effect on your assets. At Heritage Law Office, our experienced estate planning attorney will thoroughly review your needs and wants when planning your estate and provide an outline of your best options, including the creation of an irrevocable trust. Contact us either online or at 414-253-8500 to schedule a free consultation today.
Understanding Estate Taxes in Wisconsin
Estate taxes are levied on the value of a deceased person's assets before they are distributed to their heirs. In Wisconsin, there is no state-level estate tax, but estates may still be subject to federal estate taxes.
Federal Estate Tax Exemptions and Rates
The federal estate tax exemption is an amount that can be passed on to heirs tax-free. For 2023, the federal estate tax exemption is $12.06 million per individual. Any amount exceeding this exemption is subject to estate tax at a rate of 40%.
Portability of Estate Tax Exemption
Portability allows a surviving spouse to use their deceased spouse's unused federal estate tax exemption. To take advantage of portability, the executor of the deceased spouse's estate must file a timely federal estate tax return, even if no tax is due, to elect portability.
Strategies to Minimize Estate Taxes in Wisconsin
There are several estate planning strategies to minimize or avoid estate taxes. An experienced estate planning attorney can help you determine which approach is most appropriate for your situation.
Irrevocable Trusts
Irrevocable trusts can remove assets from your taxable estate, effectively reducing the amount of estate tax owed. Once assets are transferred to an irrevocable trust, they are no longer considered part of your estate for tax purposes.
Gifting Assets
Gifting assets during your lifetime can reduce the value of your estate and minimize estate taxes. The annual gift tax exclusion allows you to give up to $16,000 per recipient in 2023 without incurring gift tax or reducing your lifetime gift tax exemption.
Charitable Donations
Donating assets to a qualified charity can reduce your taxable estate and provide an income tax deduction. You can make direct gifts to a charity, establish a charitable trust, or set up a donor-advised fund.
Estate Planning and Marital Deductions in Wisconsin
The unlimited marital deduction allows you to leave assets to your spouse without incurring federal estate taxes. However, proper estate planning is necessary to ensure that your surviving spouse's estate is not unduly burdened with taxes upon their passing.
Bypass Trusts
A bypass trust, also known as a credit shelter trust, can help married couples take full advantage of both spouses' estate tax exemptions. Assets transferred to a bypass trust are not subject to estate tax when the first spouse dies, and the trust provides income to the surviving spouse during their lifetime.
Life Insurance and Estate Taxes
Life insurance proceeds are generally not subject to income tax. However, they may be included in your taxable estate if you own the policy or have control over it. Proper planning with an experienced estate planning attorney can help you minimize the impact of life insurance on your estate tax liability.
Irrevocable Life Insurance Trusts (ILITs)
An ILIT can remove life insurance proceeds from your taxable estate by transferring ownership of the policy to the trust. The trust becomes the policy owner and beneficiary, and the proceeds are not included in your estate for tax purposes.
Contact an Estate Planning Attorney
Estate taxes can significantly impact your estate plan, but proper planning with an experienced attorney can help minimize the effect. To discuss your estate planning needs with an experienced estate planning attorney, contact Heritage Law Office by using the online form or calling us directly at 414-253-8500. Our knowledgeable team will review your financial situation and help you create a comprehensive estate plan that addresses your unique needs and goals while minimizing estate tax liability.
Frequently Asked Questions (FAQs)
1. How can an irrevocable trust reduce estate taxes?
An irrevocable trust, once established and funded, removes assets from your taxable estate. By doing so, the value of your estate decreases, resulting in lower potential estate taxes. Once the assets are transferred into the irrevocable trust, they no longer count as part of your taxable estate.
2. How can charitable donations affect my estate taxes?
Donating assets to a qualified charity can decrease the value of your taxable estate, which can help to minimize estate taxes. Additionally, such charitable donations can potentially offer an income tax deduction, depending on your personal tax situation.
3. How does a bypass trust (credit shelter trust) work in minimizing estate taxes?
A bypass trust, also known as a credit shelter trust, allows married couples to maximize their use of federal estate tax exemptions. When one spouse passes away, the assets transferred into the bypass trust are not subjected to estate tax. The trust can provide income to the surviving spouse during their lifetime. Upon the death of the surviving spouse, the trust assets pass to the beneficiaries, typically the couple's children, free of any further estate tax.
