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Are you concerned about estate taxes? If you’re a high net worth individual, you probably should be.

While the exemption is $5,120,000 this year, it’s currently scheduled to plunge to $1,000,000 with a 55% rate next year, unless Congress and the President decide to alter it.

When you calculate the value of your estate, including life insurance death benefits, then it’s very possible you could be hit with some hefty taxes.

Luckily there are several different strategies out there that can minimize or even eliminate this tax liability. While meeting with a financial professional and/or estate planning attorney is helpful in choosing the right approach for your situation, it’s good to do your own research beforehand. The following could be some of your best tax-saving options:

  1. Charitable Giving During Your Lifetime

The Internal Revenue Service allows taxpayers to deduct donations up to 50% of their adjusted gross income when those gifts are distributed to public charities or certain private foundations. This is obviously a prime opportunity to lower your taxable income. The deduction can still be as much as 30% with gifts to family or other non-qualifying foundations.

Remember: the tax benefit is still secondary to your desire to aid others, however, since the tax savings you’ll receive will be less than the value of the contribution.

Also, if you donate to charities during your lifetime rather than after death and your chosen charitable organization is exempt from paying investment taxes, then the value of your contribution can grow in a tax-free manner for a much longer period of time.

  1. Valuation Discounts

If you own a business or other assets with fair market values that are difficult to determine, a valuation discount may be available in order to reduce the taxable value of your transferring assets. Check with a financial professional that is well-versed in this strategy if you think it may apply to your situation.

  1. Generation Skipping

Generation skipping is a beneficial choice for high net worth individuals, as it allows them to save their assets from being eventually taxed twice. You accomplish this strategy by transferring a portion of your estate assets to your grandchildren rather than transferring the full estate directly to your immediate children.

Normally the assets would be taxed once when transferred from you to your children (second generation) and again when your children transfer it eventually to your grandchildren (third generation), but this strategy helps you avoid that scenario.

It’s a good idea transfer only the amount to your children that you think they will need, and transfer what’s leftover to your grandchildren. That way, you’ll take care of the needs of your children and secures the future for your grandchildren in a tax-friendly manner.

Another advantage of this strategy is the trust may be protected from the claims of creditors and, to some degree, from claims of ex-spouses. Had all the trust property been left to the children outright, the property would be subject to such claims.

Bottom Line:

If you’re a high net worth individual, it’s likely you’ve strived hard for your success and worked diligently for your money. Use one or more of the above strategies and seek the advice of a financial professional to help minimize the loss those hard-earned assets to excessive taxes.


Author Ron L. Brown, CFP®

Ron is a CERTIFIED FINANCIAL PLANNER™ and President of R.L. Brown Wealth Management. He specializes in retirement, estate, and business planning for professionals and entrepreneurs. Ron assists his clients with creating a financial plan to ensure they are able to live their ideal lifestyle during retirement and leave a strong legacy for their family. Ron has been featured in The Wall Street Journal, US News, Yahoo Finance, Investopedia, and numerous other high profile financial publications.

More posts by Ron L. Brown, CFP®
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