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Depending on how much you own, your estate may have to pay estate taxes before your assets can be fully distributed. Estate taxes are different from, and in addition to, probate expenses (which can be avoided with a revocable living trust) and final income taxes (on income you receive in the year you die). Some states also have their own death inheritance taxes.
Federal estate taxes are expensive. And they must be paid in cash, usually within nine months after you die. Since few estates have this kind of cash, assets often have to be liquidated. But estate taxes can be substantially reduced or even eliminated–if you plan ahead.
|Year of Death||Exemption|
|2011 & after||$1 Million|
Assets you give away keep your cost basis (what you paid), so the recipients may have to pay capital gains tax when they sell. That’s a lot less than estate taxes (45-48%) if you keep the assets until you die. If your net estate (assets less debts) is more than the amount exempt from estate taxes for that year, estate taxes must be paid. Some of the most commonly-used strategies to remove assets from estates are explained below.
Note all of these are all irrevocable, so you can't change your mind later.