Strategies to Help you Survive Tax Season: Maximizing Your Estate

Tax Season

April 15th is not only the time to file taxes - it can be a very useful pause to evaluate your income tax planning and incorporate estate planning steps into your taxation strategies.

If you have an estate plan, it's important to consult with a CPA or financial planner throughout the year (not only at tax time) to make sure you are maximizing tax benefits, planning for retirement, and managing potential taxation of your assets for yourself and heirs. Taxation on assets during your lifetime can have a significant impact on the value of your estate. Your financial planner should work in tandem with your estate planning attorney to ensure that these plans match your personal goals.

Reduce Taxable Income

Your tax/financial advisor can help you identify methods to reduce income taxation, not only for the short-term but also in planning for retirement. For example, contributing to a retirement plan, traditional IRA, Roth IRA or flexible spending account produces deferred income that reduces your taxable income when you retire. There are also tax implications for your heirs when inheriting your IRA; discuss these with your financial advisor and estate planning attorney. Additionally, deductions such as charitable contributions and mortgage interest can reduce your adjustable gross income (AGI) which means a potentially lower tax bill. In sum, a larger estate to leave your loved ones is both a short- and long-term benefit of effective tax planning.

Transfer Wealth During Your Lifetime or Upon Death?

For 2021, the federal estate tax exemption is $11.7 million per person or $23.4 million per married couple. This allows you to transfer assets before or upon your death without incurring gift or estate taxes. Individuals are able to pass wealth either directly or through shelters such as a family limited partnership.

Keep in mind the yearly limitation for tax-free gifts. For 2021 the annual gift tax exclusion remains at $15,000. This means that an individual can give away $15,000 to any person in a calendar year ($30,000 for a married couple) without having to file a federal gift tax return and without counting toward their lifetime exemption amount.

There are other considerations that should be made as well, such as control and liability. Transferring assets upon death allows the owner to maintain control of the asset and also manage the liability for beneficiaries until their passing. This is often the case when considering real estate and business ownership.

Take Steps to Avoid Probate

Estate planning has several financial benefits. It can save you and your loved ones from having to pay both attorney and court fees by avoiding probate. All of your last wishes will be overseen by a trustee in charge of your living trust rather than a judge distributing your property through the long process of probate. Your loved ones will also be able to avoid the high cost that comes from probate, and instead of having to pay thousands of dollars out of their inheritance for probate fees, they will be able to keep far more of their inheritance for their own use, as you intended.

Strategically Use Your Time to Create a PLAN!

At Mortensen & Reinheimer, PC, we offer solution-driven strategies for your taxation concerns. Together with your tax accountant, we are here to guide you throughout the process. Please call us today for a consultation to discuss your estate planning needs.

About the author:
Tamsen R. Reinheimer, Attorney, is a Certified Specialist in Estate Planning, Trust & Probate Law (The State Bar of California Board of Legal Specialization). She has significant experience in all aspects of estate planning, trust administration, and probate. Contact Tamsen at