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Tax Free Inheritance

Every parent has a desire to secure the future of their children. Although they might acquire huge sums of money which they leave for their children, the tax man is going to take away a sizable chunk. Although since 2005, estate tax has been on the decline and up to $1.5 million of the inheritance is tax free, the rest can be taxed to a maximum of 47%. In the present year the tax free inheritance limit is $3.5 million and the remaining inheritance is subject to a maximum tax of 45%.

Another tip to leave a tax free inheritance, as far as possible is to hold on to your stocks. If you sell your stocks for a profit you will have to bear Capital Gains Tax and the person inheriting that money will also have to pay estate duty if the total amount goes over the minimum limit. If the person inherits the actual stock instead, it is considered at the marked-up price and not at the value at which it was bought. So if a stock was bought at $5 and a person inherits this stock, which is now valued at $20, he will not have to pay any Capital Gains Tax if he sells the stock at that price.

But the main way you can leave a tax free inheritance is build a trust fund based on an insurance policy on your life. You can establish a tax free inheritance trust and name a trustworthy person or persons as trustees. This trust is then funded to pay the premiums which will be due on your life insurance policy. You the parent as a donor can fund the trust to pay the premiums or in many cases it is the grandparents who will pay the premiums on the life of the parents and the grand children will be the beneficiaries.

In the event of death of the insurance policy holder, the beneficiaries, will get the insurance amount totally tax free. They will not have to pay income tax and also will be exempt from estate tax. Judging by the different life insurance policies that are available today one can create a huge term insurance with sizable death benefits. When this insurance is made with a tax free inheritance trust it will be a huge benefit to the inheritors and they will not have to pay tax. This is one of the best ways of guaranteeing a tax free inheritance for your children.

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