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How can I minimize taxes on my estate?

Answer:

This question may seem simple, but the answer is not so easy. In fact, there are experts who make their living answering just this question.

Estate tax liability depends on the year in which you die and the value of your estate when you die (see the following chart).

Year of DeathValue of Estate on which Estate Tax May Be Imposed (estates in excess of the applicable exclusion amount)
2011$5,000,000 plus any deceased spousal unused exemption amount
2012$5,120,000 plus any deceased spousal unused exemption amount
2013$5,250,000 plus any deceased spousal unused exemption amount

Thus, you can minimize estate tax by reducing the value of your estate until it is below the applicable exclusion amount. There are many ways you can accomplish this. The best way(s) for you may not be the best ways for others and vice versa. (Note: We're discussing only federal estate tax here. Your estate may also be subject to state death taxes. See a tax attorney for more information about state death taxes.)

One way is to make lifetime gifts. Be aware, however, that certain lifetime gifts may trigger gift tax. Gifts that do not trigger gift tax include the following:

  • Gifts made to U.S. citizen spouses and certain charities
  • Gifts of $143,000 or less made to non-U.S. citizen spouses (in 2013)
  • Certain payments made for tuition or medical expenses on the behalf of others
  • Gifts up to the annual gift tax exclusion amount of $14,000 (current figure; this figure is indexed for inflation, so it may change in future years)
  • Gifts made that fall under the applicable exclusion amount (Note: Any portion of the applicable exclusion amount used for lifetime gifts effectively reduces the applicable exclusion amount that will be available for estate tax purposes.)

See a tax attorney for more information about federal and state gifts taxes.

Another common technique to minimize estate taxes is to transfer assets to an irrevocable trust. Such a transfer may be subject to gift tax on the value of the assets at the time of the transfer, but the assets, plus any future appreciation, are removed from your gross estate. There are many types of irrevocable trusts, each created for a specific purpose. Be aware, however, that as the name implies, an irrevocable trust cannot be revoked or amended.

This is just a brief glimpse of some of the techniques used to minimize estate taxes. For more information, or to discuss how these techniques might apply to your own situation, you should consult a qualified tax attorney.

Please be advised that this materials is not intended as legal or tax advice. Accordingly, any tax information provided in this material is not intended or written to be used, and cannot be used, by any taxpayer for the purpose of avoiding penalties that may be imposed on the taxpayer. The tax information was written to support the promotion or marketing of the transactions(s) or matter(s) addressed and you should seek advice based on your particular circumstances from an independent advisor.

An ILIT is irrevocable and cannot be changed once it has been created. An insured individual contemplating the use of an ILIT must be willing to relinquish control of the assets transferred to the trust and must recognize the limitations that arise as a result thereof. The insured may not retain the right to revoke, alter, amend, or terminate the Trust, meaning that the insured may not retain the power to change the trust beneficiaries and their interests. Likewise, the insured can not require that the assets contributed to the trust be used to pay premiums or otherwise maintain life insurance owned by the trust. Finally, the insured may not retain any economic benefit in the life insurance policy, for example, the insured will not be able to cash in or borrow against the cash surrender value of any life insurance policy after it is transferred to the Trust.

Information provided has been prepared from sources and data we believe to be accurate, but we make no representation as to its accuracy or completeness. Data and information is not intended for solicitation or trading purposes. Please consult your tax and legal advisors regarding your individual situation. Neither AXA Equitable nor any of the data provided by AXA Equitable or its content providers, such as Broadridge Investor Communication Solutions, Inc., shall be liable for any errors or delays in the content, or for the actions taken in reliance therein. By accessing the AXA Equitable website, a user agrees to abide by the terms and conditions of the site including not redistributing the information found therein.

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GE 37653 (03/2007)