Inheritance tax can be huge in some countries. They can dilute your wealth assets substantially when passed from one generation to the next. For instance on the death of a person the assets will pass to the surviving spouse who may be equally aged. There will be payment of inheritance tax. Within few years the assets will be taxed again as the property passes from the surviving spouse to the children.
Through proper planning, inheritance tax liabilities can be reduced or eliminated altogether.
In jointly holding assets, there is nothing to transfer when one of the joint holders dies, which also reduces income tax liabilities when the joint holders are alive.
Transfer Estate to Your Loved Ones when still Alive
You can transfer money and assets to your nominees before you die. There are limits to how much you can gift each year. The amount you can transfer will differ according to laws in each country and you must consult your accountant before transferring money or assets.
Leave Something to Philanthropy
Anything you leave to philanthropy is free of Inheritance Tax so it can be a helpful method for lessening your Inheritance Tax burden – at the same time, giving money for a noble cause.
Put your Life Insurance Cover in Trust
If you do this, payout from the life insurance will go into the trust directly. Your beneficiaries will get the money without paying any inheritance tax. You simply have to inform your insurance company and they will do this free of charge.
Set up a Trust in your Will
This kind of a trust comes into existence only when a person dies. It facilitates transfer of assets to surviving spouse through sale of shares in return for an IOU. When the second person dies the loan is repaid thereby saving inheritance tax. This is a very complicated trust and needs to be set up by experts.
Lump-sum payments on death like insurance should be paid into a trust so that they can be transferred to beneficiaries with paying inheritance tax.
Tax Saving Investments
There are several investments that are exempt from inheritance tax and you may consider investing in them in time. A word of caution: you should not invest in such schemes blindly simply because they are tax efficient. You must look at each investment on merit after taking into account tax benefits. There is no point in buying a bad investment simply to avoid paying tax.
“The rich man is a fool who dies without arranging his affairs to assure that his wealth does well during his lifetime and after his passing.”
Arraigning your affairs means that you should start taking actions when you are still in your prime and not leave it for too late in life. You can put your wealth to great use in your lifetime and with proper planning, ensure that it continues to be productive long after you are gone. These include educating all stake holders, using proper asset protection vehicles and planning transference of wealth to the next generation.