Reducing Exposure to Estate Tax
For most of the world, estates are taxed at or around 40 percent. In the United States, however, a few different tricks and tools you can implement before you pass away could be beneficial to your family and loved ones in terms of your remaining assets. While estate taxes in the United States are rare, it can be constructive to avoid them in some circumstances.
Avoiding Life Insurance Proceed Taxation in the United States
Some individuals choose to purchase life insurance, an insurance product that usually generates a significant amount of money payable to your beneficiaries right when you die. The United States Internal Revenue Code states that the value of life insurance proceeds ensuring your life are included in your gross estate if they’re payable to named beneficiaries or your estate. Federally you are exempt from these taxes if the estate value is below $11.7 million. Additionally, any life insurance policies within three years of the policyholder’s death are subject to federal estate tax.
While the $11.7 million thresholds for exclusion from estate tax may seem unreachable, it is possible to hit that number. Many wealthy individuals and families seek to reduce their generational tax burden by allocating assets to young and sometimes not yet born family members. Considering all assets, retirement funds, and various other factors, including growth, a life insurance policy could put you over that threshold. Transferring the policy to another individual or trust could save your family lots of money when you are gone.
If you are looking to avoid federal taxation on significant life insurance proceeds, you’ll need to transfer ownership of your policy to another person. Be sure to understand the amplification of doing such an effective action; it is irreversible. So, consider who will be the beneficiary and their abilities to execute your wishes.
According to the United States’ O.M.B., estate taxes account for less than 1 percent of the federal revenue. In 2014 the estate tax raised just over $19 billion, a small fraction of the total U.S. budget.
While the United States has a high tax rate on estates, 40 percent, it raises relatively little revenue, and the study below believes that eliminating the estate tax would be significantly better for the U.S.U.S. economy in the long run.
Estate Taxes around the World
The United States has the fourth-highest estate tax in the world, tied with the United Kingdom. Japan tops the list with a 55 percent tax rate, and South Korea and France are at 50 and 45 percent, respectively.
Estate Tax in Israel
Currently, there is no inheritance tax or gift tax on the transfer of assets upon death in Israel.
