Quora Answer: How Can a 70-Year-Old Pass His Estate to His Children & Avoid Estate Taxes?

The following is my answer to a Quora question: “How can a 70-something-year-old widower pass on his property, and investments, to his two surviving children, and avoid taxes as much as possible?”

You can mitigate your tax liability, but you cannot avoid taxes altogether.  I can only advise in general because actual financial advise requires a comprehensive financial health review, and a KYC, for compliance.

Firstly, assuming that wherever you are has an estate tax, then passing them your estate directly would incur tax, and it might be substantial.  As such, you need a vehicle.  The obvious choice is to create a revocable trust that turns into a testamentary trust upon your death.  A trust is a distinct legal entity.  A natural person is taxed on gross worth; a company or trust is taxed on net worth, less expenses, and deductions expensed out.  This immediately lowers your tax liability.

Secondly, a revocable trust allows you direct control of your assets, even though you are the settlor.  You then appoint your trustees, and children as beneficiaries, and they take over upon your death.  This gives them immediate control of their inheritance without the immediate tax bill. They can then draw down from the trust, using the trust to pay the tax liability, not them.

If they want something more complicated, they may consider a trust paying to a company or another entity they control.