Everyone wants to pay higher taxes and deplete their wealth as quickly as possible but you may not be doing that in the most efficient way. Have you been feeling overwhelmed by the size of your estate? Does it seem like you just haven’t been paying enough taxes lately? If you’re looking for a way to quickly reduce your estate and grow your tax losses, all while ensuring your beneficiaries inherit the smallest version of your estate possible, these 15 easy tips will help you squander your estate within months. It’s time to stop being responsible, because losing all your assets while paying more taxes is so easy, nearly anyone can do it!
One of the most effective ways to accrue a massive amount of fees and taxes is to start taking money out of all your retirement funds. IRAs and 401(k)s are an easy place to put your money, but these funds may not have been taxed yet. Distributing any and all money in these accounts before your retirement will rack up fees almost immediately. Furthermore, if you’ve been contributing significant amounts of your income to a 401(k) or IRA, stop immediately. If you’re planning to set money aside, the best way to pay the most taxes over time is to do nothing with it and watch it depreciate. By adding pre-tax money straight into a retirement fund, you’re losing the opportunity to accrue the maximum amount of tax loss. Besides, that money is probably far more useful to you right now.
While it may initially seem like an advantage to have multiple properties, the tax breaks and rewards are too numerous to make property investment a wise decision. From the regular mortgage payments to the final sale of the home--every step of the process involves significant tax savings created to work toward the property owner’s advantage. When making interest payments on your mortgage, you can usually take deductions for the interest you’ve been paying to the bank or your lender. Real estate taxes are also tax deductible. Also keep in mind that when you eventually sell your property, a large percentage of the money from the sale is considered tax-free profit. All these tax breaks make buying and selling a home something you should approach with caution, as preventing tax savings will be difficult.
Insurance can be extremely risky. You get caught paying all those fees for something that probably won’t even happen. What’s more, many types of insurance often come with tax incentives that will be hard to escape. If you’re still considering insurance despite the risks, be sure to avoid these types if possible: Life insurance: There are so many tax benefits when investing in life insurance. After death, the benefits are generally paid out to beneficiaries income-tax free, and if the benefit is property, it may be estate-tax free as well. This favorable tax treatment makes life insurance a very dangerous investment. Homeowners insurance: This is mostly just for people who worry too much about natural disasters. What are the chances that would ever happen to you? Auto insurance: Unfortunately, like homeowner’s insurance, automotive insurance is often required by law. If it is required in your state, consider getting the plan with the least coverage.
There are countless liability situations that can arise, especially for those who own businesses. Some people get caught with liability suits surrounding malpractice, accidents, discrimination, contract breaches, divorce, debt, medical incidents, foreclosure, loans, and more. But those people aren’t you! It’s a lot of work to prepare for such a wide range of scenarios, especially when they probably won’t ever apply to you. Rest easy knowing your luck is solid, and enjoy all the money you saved by forgoing all the various liability insurance available.
Why pay someone to get your affairs in order, when you’re not even sure if that’s what’s best for you? Attorneys can cost you hundreds of dollars and will just end up insisting you compile a comprehensive estate plan. If you want to ensure you experience no reduction in taxes, it may be best to stay away from legal professionals. Even if you eventually decide to plan for the future of your estate, how hard could it possibly be? The numerous legal documents surrounding estate planning are surely all in easily understood language, and you probably already know all the estate planning laws in your state anyway. Even if you make a mistake when drafting documents, is a dispute really that problematic? It’s most likely going to be completely fine, since tax and asset concerns are generally fairly straightforward.
Keeping all your important documents together and organized takes a lot of time, and will make you too prepared in the event of unfortunate circumstances. It’s far better to just leave things as they are. It’s important not to evaluate all your assets as a complete estate; which would involve compiling any records such as wills, trusts, insurance policies, deeds, bonds and stock certificates, financial accounts, retirement plans, debts, funeral arrangements, business interests, personal property, and more. Gathering these into an easily accessible collection will make it difficult to ensure tax losses and may result in accidental asset protection.
There are many kinds of documents that can be drafted that provide instructions for a person’s preferences regarding medical care in the event of an accident or unexpected incapacitation, mental or physical. Common examples of advance directives include Power of Attorney (or health care proxy), and living wills. Selecting someone as your health care proxy assigns them the responsibility of making medical decisions for you should you be unable to make them for yourself, whereas a living will outlines your wishes regarding resuscitation, palliative care, organ donations, and other unfortunate events. Maybe advance directives seem like useful documents to prepare, but it’s also a lot of work just to make things easier on your family. You’ll also be expected to give copies of the documents to doctors, health care agents, and even carry a card in your wallet. Who has room for that kind of thing?
If you’re a business owner, your business is likely one of the biggest assets you have. Business protection involves creating a plan for the future of your business after you pass away. You would need to designate a successor, and include who would be responsible for the business’s ownership as well as management. But as you probably are aware, running a business is difficult and time-consuming. You probably don’t have time to create a succession plan. You’re good at what you do, so you likely won’t have to worry about needing a contingency plan.
It may be tempting to start planning for the future of your estate, but this results in enormous tax savings and will preserve the state of your assets. What’s more, an estate plan will need to be updated regularly--nearly every 5 years! We have already cautioned you about some of the risks of estate planning, such as life insurance, business protection, retirement accounts, and incapacitation scenarios, but be aware that it could also lead to other dangers such as savings in court costs and attorney fees, faster distributions to your beneficiaries, and giving you more control over what happens to your assets after you pass. Be careful. Most of the actions people take during estate planning are geared toward saving the maximum part of their estate and reducing tax costs. Know your risks before attempting to make plans for your estate’s future.
The best way to lose your assets after you pass is to allow your estate to become intestate--this can easily be achieved by not drafting a will. Wills designate the beneficiaries and heirs of your estate, and are a popular option for the unnecessary estate planning process. They must be updated regularly, and may sometimes require notarization--this can be a huge inconvenience. While drafting a will may seem unnecessary, keep in mind that it’s still possible to have your estate enter the long and costly probate process. So if you decide you’d still like to risk having an estate plan in place, be sure to choose a will over a living trust--wills have much less security over your estate’s interest, and there’s still a chance your estate could enter probate, preventing an immediate and efficient payout to your beneficiaries.
Many people choose to place their assets in a trust while they’re still alive. This involves the creation of a trust while they are still alive, then after death the trust is distributed to the beneficiaries according to the terms of the trust. Living trusts can be revocable or irrevocable. There are dangers associated with both options, but for large estates, irrevocable trusts are particularly risky. They work by removing assets from the estate, which may make them ineligible for estate or capital gains taxes. Living trusts come with more control over your estate’s future, ensure privacy by not making your estate distributions public, and can prevent significant costs during the process--all things you may want to avoid. And just as it sounds, drafting a living trust is an overly complicated process, that comes with a variety of difficult decisions and very little payoff. How are you supposed to decide who to put in charge of your affairs and who should inherit your estate? Without drafting a living trust, your estate’s fate is left in the hands of the state. That’s something you should feel confident will have the best outcome in nearly every scenario.
Probate is the court-supervised process that an estate goes through when someone has died. It’s the way that assets are distributed to beneficiaries and heirs when it has not been placed in a trust. There are significant costs associated with probate, due to court-filing fees, appraisal costs and numerous attorney fees. The process will take a year or more, and all the details of your estate will become public record during the proceedings. How can you know if probate is right for you? If you’re looking to reduce the size of your estate before it’s passed to your beneficiaries, further complicate an already slow and complex process, and you are against keeping your financial matters private, probate is probably an excellent fit for you and your estate. To be absolutely sure your estate goes to probate court, you’ll need to avoid drafting a living trust at all costs. By putting your assets in the hands of a trustee, you’ll completely bypass the probate process, since the funds have already been distributed to the trust. You should also avoid naming beneficiaries on your bank accounts, as this will allow the funds to be paid out directly, avoiding probate. Finally, don’t make the mistake of joint-tenancy on your property--these assets will automatically go to the joint-tenant upon your passing.
There are huge tax advantages when gifting large sums of money to family members. Be sure to prevent these tax savings and avoid sharing your monetary, property, or financial assets with relatives whenever possible. Similarly, avoid tax deductions associated with donating money to charity. There are numerous write-offs for those who donate money to charitable organizations. If you still want to contribute to charity, you’ll just need to ensure that you don’t report your donations when doing your taxes.
There are countless tax losses you could be taking advantage of, and it’s important to be aware of which tax options you should avoid and which are best for you. Federal gift & estate tax exemption: This is a tax break you’ll want to avoid. Instead of penalizing gifts and donations, these acts are rewarded through tax breaks and deductions since they are no longer considered a part of your estate and are therefore not taxable. There is even a marital deduction that allows for unlimited monetary gifts to your spouse, so be careful when giving money to loved ones. Be aware that this also includes paying others’ tuition or medical expenses as well as making donations to charity. Generation-skipping transfer: This transfer is one exception to the gifting exemption. If gifts are made to a person that is more than 37.5 years younger, the gift will then be eligible for taxation. So if you wish to gift money to relatives, be sure they are significantly younger.
It helps to remember that filing for bankruptcy can always serve as a helpful fall back. If your debt or foreclosure risk ever gets out of hand, you can rest easy knowing you can just surrender all your remaining assets to your creditors. You won’t have to worry about your estate anymore, and your abysmal credit score will prevent you from easily acquiring any assets in the future; you won’t find yourself in the same situation again! If you still haven’t decided which strategy is right for you after considering these 15 tips, it may be best to take the wait and see approach. By not doing anything to plan for your estate, you can feel confident knowing the end result will probably be the same--watch your tax obligation grow, while your assets shrink.
If you absolutely insist on maintaining your assets, keeping your taxes low, and passing on your estate to your loved ones, you can always give us a call at (619) 258-8335 and we'll get you set up.
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