Incorporating Income Tax Planning Into Your Estate Plan

As estate-planning attorneys settle into the new tax rules for 2013, the focus of estate planning is beginning to take a marked shift. The $5.25 million federal estate tax exemption means that fewer people will have to plan to avoid federal estate taxes. Therefore, as a recent article explains, estate-planning attorneys are now shifting their attention to different ways they can utilize estate planning tools to reduce income taxes.

From those who are in the top tier tax bracket, this is a welcomed change. Presently, income taxes are approaching 50 percent for these individuals and families. Unlike the federal estate tax – that only affects those who make over $5.25 million individually – income taxes affect the vast majority of citizens. Therefore, income tax planning is important in terms of helping wealthy Americans to retain more of their wealth.

One poplar income tax planning maneuver is planned loans to family members in low tax brackets. Any income from the loan is taxed in the lower tax bracket, and then the lender receives the full amount of the loan back following the life of the loan. Therefore, rather than paying nearly 50 percent in taxes on the income from invested money, the borrower would pay a mere 15 percent if he or she is in a low tax bracket.

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