“After subtracting burial costs, the remaining assets typically pour into the trust. However, taxes are an important factor to consider. One key aspect of estate planning is structuring your plan to minimize taxes. Depending on how assets are inherited, heirs may face more or fewer taxes. In many cases, passing assets through a trust offers significant tax benefits. It’s essential to consult a tax professional to develop a plan that optimizes these benefits.

To give you a quick overview: when a death occurs, there are potential federal and state taxes on both the deceased’s estate and the recipients. Currently, the federal estate tax has an exemption of $13 million. This means estates valued under $13 million are not taxed, but any amount over that threshold is subject to taxation. Most people don’t reach this threshold, so it doesn’t impact them. However, this exemption is set to expire in 2025. What will replace it depends on Congress and the outcomes of upcoming elections. Depending on the political majority, the exemption could remain the same, decrease, or change entirely.

Similarly, state-level exemptions and tax rates also fluctuate. For example, some states used to have a much lower exemption threshold of $670,000, though it has increased in recent years. This could also decrease in the future. State estate taxes tend to be high—often with rates comparable to or even higher than federal estate taxes.

To minimize tax liability, it’s essential to plan accordingly. For instance, the estate of actor James Gandolfini (known for The Sopranos, a show about the New Jersey Mafia) is a cautionary tale. His estate was poorly planned, leaving about 80% of it exposed to taxes. As a result, 55% of the estate’s value went toward taxes instead of his heirs.

Some argue that estate taxes are unfair or akin to theft, and under Islamic law (Sharia), they are viewed as such. Regardless of your perspective, estate planning is crucial to protect your wealth and ensure it is distributed according to your wishes, while also minimizing tax exposure.”

Shaykh Shadee Elmasry: