When we buy or build a house, we want this place to be the one where our children and grandchildren will live happily in the future. We put all our money and efforts into making the house as cozy and long-lasting as possible so that they inherit a decent place.
Also, people tend to save money for their whole lives to be sure that their children will inherit some considerable amount and will not have to work as hard as they did. Indeed, it might make their future brighter without worrying about tuition bills or loans.
Learning that for inheriting property or money, our children will pay a fortune in taxes might be frustrating. The inheritance tax depends on the region; for instance, the inheritance laws in Idaho are very different from those in New Hampshire, etc. The percentage of the total value of the house that should be given to the government in the U.K. differs from the one in the U.S.
No matter a region or a country, most of us would like to avoid inheritance tax liabilities. If you wonder whether it is possible, there is some excellent news. In this article, you will find ways to avoid it.
Put Assets in a Trust
Putting money or property in a trust lets you pass them to someone by your own rules. For instance, you can specify the age your beneficiary should be to receive your heritage. If you are giving money, you can also determine how this money can be spent. You can even skip a generation and specify that the inheritance will go directly to your grandchildren.
You can also put money in an irrevocable trust, which implies that you cannot modify or dissolve your decision later. Due to the fact that the assets are no longer in your direct possession, you do not have to pay income tax on any interest made from the assets.
But the most important advantage is that all the assets that you put in a trust do not belong to your property after death, and, therefore, your children do not have to pay an inheritance tax.
Stay below the Inheritance Tax Threshold
Inheritance tax threshold is the amount of money from which a person starts paying taxes. The limit in the U.K. is £325,000 per person. Married couples have their threshold doubled, and it is £650,000 for them. Or, when it comes to the U.S., the estate tax needs to be paid if the worth of the estate exceeds $11.4 million for a single person, and $22.8 million for a married couple (as of 2019).
Therefore, if you stay below the threshold, you can avoid or reduce inheritance tax.
Give Your Property Away
If one gives their assets away and then survives at least seven more years, the gifts are free, and an inheritance tax is avoided. If the heritage you want to leave is money rather than property, you can also give away smaller sums of money on a yearly basis, completely free from I.T.H.
Spend Your Well Earned Money
Many people spend their whole lives, saving every penny, and buying properties so that their kids can lead happy lives. However, in many cases, the government will take almost 40% of this money after their deaths. Therefore, one may come to the conclusion that maybe it is better to enjoy life to the fullest with the money that the government will take anyway.
You can plan family trips to discover beautiful places on earth and give your children some memories and experience. Go to restaurants and enjoy delicious food. Do all the activities that were too expensive for you when you were young. Now, when you have a lot of free time and money, it might be the best occasion to enjoy life to the fullest.
The Bottom Line
Inheritance tax indeed takes away a vast percentage of the assets you want your family members to inherit. Many people do not know about it and make a huge mistake by not taking care of this issue when it is not too late. Everything is in your hands, and you can avoid I.H.T. by following some simple steps.
Remember about the threshold and try to stay below it. If your property’s value is much higher, you might consider selling a house and buying a smaller one. The extra money can always be given away to your dearest and nearest or spent in a very pleasurable way.
You can also consider putting money property in an irrevocable trust, which will guarantee that those who receive it will not have to pay a huge tax.
The choices are many, so make sure to make a good one.