You love your family more than anything, and you want to ensure that they have every opportunity to thrive–even after you are gone.
Life happens in the blink of an eye. You have no way of knowing what will happen tomorrow, but you can take steps to protect your family in the future with your estate.
Of course, it is not as simple as naming your family members as beneficiaries of your assets. You also have to deal with the South Carolina estate tax.
Here are three tips to help you sidestep the estate tax and ensure that your family gets the maximum benefit.
Generation-skipping, sometimes done via a generation-skipping trust, is when you transfer a portion of your estate assets to your grandchildren rather than passing the assets to your children.
Typically, your assets are taxed twice on the way to your grandchildren: first, when they pass from you to your children (second generation), and again when your children later transfer them to their children (third generation).
Generation-skipping sidesteps the intermediate tax. The downside, of course, is that your children cannot access assets that get designated to your grandchildren (which your children may not be happy about).
Most people take a moderate approach. They designate as many assets to their children as they think they will need and elect the excess be apportioned to their grandchildren.
If you are not entirely comfortable with generation-skipping, you can take a more proactive approach with lifetime gifts to your children and grandchildren.
This is precisely what it sounds like: rather than waiting for your assets to pass when you die, you directly gift part of your assets to your children and grandchildren.
Every year, a person can make a gift of up to $12,000 without incurring a gift tax. If both you and your spouse give the maximum amount, you can collectively gift away $24,000 per year per recipient. This gift, in turn, reduces your taxable estate.
It does require you to be comfortable giving away a portion of your assets while you are still alive–or have the financial bandwidth to do so. If you are worried about running out of money, though, this may not be the right choice for you, as it is inordinately difficult to reclaim this money once you have gifted it away.
Put Your Assets in a Trust
Ultimately, the only real way to protect your whole estate against taxes is to put it in a trust, though most people are wary of this option since it signs control of your assets over to someone else.
First, keep in mind that there are many different types of trusts you can create, and you can designate almost anyone to manage the trust for you, including a family member.
If you do decide to establish a trust, though, it is essential to work with an estate planner, as there are many rules and exemptions attached to trusts that you may not be aware of.
Need Help Figuring Out South Carolina Estate Tax?
At Indigo Family Law, we know that family is the only thing that matters. We also know that time flies, especially for busy parents. That is why we are here to help you figure out the South Carolina estate tax–or whatever else you might need.
If you would like to speak with a lawyer about your options, use our contact page to get in touch.