Options to minimize estate tax liabilities

Many people in New York may think of 529 plans solely as a matter of saving for their children’s education during their lives. However, these plans may also provide an estate planning option for people who want to lessen the estate tax burden. While the federal estate tax exemption has been raised, many people may want to protect larger amounts, and state estate taxes may remain a concern.

One of the most popular mechanisms for removing assets from the estate so they will not be subject to taxation is creating an irrevocable trust. This kind of trust permanently transfers property from the grantor, holding it in trust for the named beneficiaries. Because it is an irrevocable trust, it cannot later be changed by the grantor to benefit another person. One of the requirements for the estate tax protection provided by this type of trust is that the grantor may no longer control the property. There are options that can be built into an irrevocable trust, such as a trust protector or appointment powers for some beneficiaries, but many still may worry about giving up this amount of control.

Here is where 529 plans may be useful. Of course, these accounts are limited to educational expenses, but many people want to provide for the educational needs of future generations. Funds placed in a 529 plan are excluded from the estate for tax calculations, but the named beneficiary of the plan may be changed repeatedly while its owner is alive.

529 plans can provide additional flexibility along with a level of estate tax protection, especially for people already planning to contribute to educational needs. An estate planning attorney may help people to develop a comprehensive plan to minimize those liabilities.