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What are the Best Ways of Legally Avoiding Inheritance Taxes?

Alicia Sparks
Alicia Sparks

Methods for legally avoiding inheritance taxes depend on each nation’s or region’s inheritance tax laws. Some areas place exemption amounts on inheritance taxes, allowing heirs to avoid taxes or only pay taxes on a portion of the estate, while some extend an inheritance tax waiver to married couples. Gifts, trusts, and charitable donations might also be ways of legally avoiding inheritance taxes. Regardless of how a person chooses to help his heirs avoid estate taxes, it’s important for him and his heirs to seek advice from both an estate tax attorney and a tax professional. These professionals can help make sure they are indeed avoiding inheritance taxes in a legal way.

Depending on the exemption amount set forth by a particular region or country, avoiding inheritance taxes can be as simple as inheriting below a certain value. For example, per the laws surrounding the Federal Estate Tax in the United States, heirs can avoid estate taxes on a specified amount or value of assets. In 2010, this amount was $1 million US Dollars (USD). The heir must pay an inheritance tax on any inheritance that exists, or is leftover, after deducting the exemption amount. Note that each state can have its own inheritance tax laws, just as other countries and regions within those countries will have varying estate tax laws.

Businessman with a briefcase
Businessman with a briefcase

Sometimes, avoiding inheritance taxes is a matter of being married. For example, married people often receive an inheritance tax waiver under inheritance tax laws in the United States. Simply put, if one spouse dies and leaves an inheritance to the other spouse, the living spouse doesn’t have to pay an inheritance tax. Generally, this is true no matter what the value of the inheritance. Once the surviving spouse dies, though, whoever receives that inheritance will most likely have to pay an inheritance tax.

Additional ways to help future heirs legally avoid estate taxes include giving tax-free gifts, creating a living trust, and leaving the money or property to charity. It’s important to understand that these methods might help an heir avoid all or only a portion of inheritance taxes. For example, if a gift exceeds a certain value, the receiver might have to pay a gift tax. Similarly, any spouse exemption amounts associated with trusts can be combined and applied to the estate balance, lowering the amount of taxes heirs must pay. Anyone considering one or more of these methods should discuss the options with both a tax professional and an attorney with experience with estate planning and the region’s estate and inheritance laws.

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