7 FAQs About Estate Planning and Taxes

Tax and estate planning can be an understandably daunting task, and it’s natural to wonder why it matters. Creating an estate plan helps ensure your assets are passed on according to your wishes and can minimize confusion and unnecessary stress for your loved ones later on. 

As you begin the process, here are seven of the most common questions people ask. And when you’re ready to take the first step in creating your personalized estate plan, connect with a Farm Bureau agent who can help guide you forward. 

What’s the Difference Between Estate and Inheritance Taxes?

When assets transfer after a loved one passes, there are typically two kinds of taxes that may be owed: estate or inheritance tax. Estate taxes are owed when there is a transfer of property after someone’s death and is paid for by the estate of the deceased. Inheritance tax is paid by beneficiaries after receiving money or property from the deceased person’s estate. Currently, inheritance tax only applies to Kentucky, Maryland, Nebraska, New Jersey and Pennsylvania and can vary depending on the size of an estate and the beneficiary.

How Can Estate Planning Reduce Taxes?

Proactively planning to who and how your estate is distributed can help reduce or eliminate federal and state taxes on the transfer of your wealth. Setting up wills, trusts, charitable giving, and gifts are a few estate tax planning strategies that can help you. To find what strategies could work the best for you, reach out to an agent. 

When Should You Start Planning?

The first step to planning is knowing when to start. The earlier you start planning what happens with your assets after your passing, the more flexibility you have to make choices. Updating your plans after major life changes like marriage or buying a home is a great place to start when tax and estate planning. 

Who Should You Involve in the Process?

Furthermore, it’s also important to choose the key people who’ll help carry out your estate plan. Naming an executor, trustee, and power of attorney are great places to start. These roles can be filled by professionals you trust – like an attorney, financial advisors, or even an insurance agent. 

Should You Talk to Your Family About Their Inheritance?

Conversations with your loved ones about large amounts of money or what will happen after you pass can be awkward or scary. However, maintaining transparency about your plans and your expectations can be helpful in avoiding surprises later on and can give your family a clear understanding of your intentions and any responsibilities they may have.  

How Can Trusts and Insurance Support Your Plan?

Trusts are a legal entity created to hold assets for the benefit of someone other than the creator. Trusts can include almost anything – cash, real estate, or valuable possessions, and can help manage how your assets are distributed after you pass. Life insurance can also be a way to secure your wealth for your heirs and help lower tax expenses or equalize inheritances. Life insurance can be helpful when your inheritance isn’t easy to divide or you have an heir with expensive medical conditions. 

What Mistakes Should You Avoid?

Planning your estate strategy can feel complicated and overwhelming when getting started. Common mistakes when planning include waiting too long to start, not updating your documents after major life changes, or forgetting to plan for taxes. Regularly revisiting your plan throughout your life can help you avoid some of these issues. 

Plan Today to Protect Tomorrow

Contact a Farm Bureau agent today to help you get started in creating a personalized inheritance plan that minimizes taxes and protects your legacy.