Federal Estate Tax (aka Death Tax)

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Form 706 Changes 2016

The applicable estate exclusion amount is now $5,450,000 (2016)

-$5,430,000 (2015), and $5,340,000 (2014),

The tax laws have changed again.

 

  • President Obama signed a new tax bill on December 17, 2010, entitled “The Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010,” or more fondly  referred to as the “Tax Relief Act” or “TRA.” This bill includes an  extension of various provisions of the Bush era tax cuts; but it also makes significant changes in the tax laws affecting estates (and therefore, the estate planning of our clients).

 

  • From an estate planning point of view, if you have not conferred with us in a few years, you may now  want to take the opportunity to review your planning to see if changes are warranted, given the new estate tax environment. Please note that these changes apply to 2011 and 2012. The extension of the Bush era tax cuts and  the new estate tax rules apply only for those two years, and then the old law returns.

Below is a summary of some of the TRA provisions as they affect estate planning.

ESTATE, GIFT AND GENERATION SKIPPING TAX PROVISIONS OF NEW TAX BILL

For persons dying during 2011 and 2012, the estate tax exemption will be $5,000,000, not the previous exemption of $1,000.000. The TRA also increases the generation skipping tax exemption to $5,000,000. Congress must revisit the estate tax laws before the end of 2012, otherwise we will revert to pre 2001 level of a $1,000,000 exemption – here we go again! In addition, for the next two years, the top marginal rate of federal estate tax is lowered to 35% (which also therefore lowers the generation skipping tax rate to 35%).

The return to a unified gift and estate tax system is a welcome change. Prior to this year, based on earlier changes in the law, the gift tax exemption (after applying the annual exclusion of $13,000) was $1,000,000 per person (the lifetime exemption). This lower gift tax exemption limited the opportunities for high net worth clients to use gifts as a technique to lower federal estate taxes. Now that we have returned to a unified system, individuals may make gifts during lifetime of up to $5,000,000 (reduced by amounts used in prior years) without any current federal gift tax cost. This offers high net worth individuals many opportunities for tax planning during the next two years, while this increased exemption is in place.

ESTATE PLANS SHOULD BE REVIEWED

In any event, no estate plan should be established and then ignored. These plans should be reviewed every few years – and never ignored for a period longer than seven years by our clients because their lives change and these changes may have a greater impact on their planning than any tax law changes that come along. Please contact us at the Estate Planning Legal Center, APC if you want to review your estate planning documents and believe you may be ready to make an amendment to your documents.

PRROBATE, WHAT WILL PROBATE COST ANYWAY?

Let me give you an idea of the cost of probate. If you had a home with a market value of $500,000, and you owe $200,000 on the mortgage, the cost of probating just this one asset will be about $13,000 to the lawyer and $13,000 to your Executor, for a total of $26,000! Probate is based on the market value of your home (assets), not the equity in the home.

WITH A LIVING TRUST IN PLACE YOU WILL NOT PAY THIS!

What about a Will?  –  Well, the word Probate means “To Prove a Will.” Wills will go through probate, and probate takes about two year s or longer (at the very minimum -one year)  Whether you have a Wll or not, you will still go through probate.

A LIVING TRUST WILL AVOID PROBATE!

What about Joint Tenancy? Well, this just delays probate. When the last spouse dies, there will be a PROBATE, unless you have a living trust.

What about adding a child as a joint tenant on your property?  After all, they can share the property with their siblings after I die.

Wrong. To share an inheritance with other members of the family the beneficiary would incur Gift Tax consequences; Also, if the daughter, or son, whatever the case may be, were to get in trouble with the I.R.S., or rack up credit card debt, or become involved in a marriage that ends in divorce, this would be a good way to lose your home, even before you die.

WHAT IF YOU DECIDE TO SELL YOUR HOME?
If you sell your home, you may have a $500,000 exemption from the Capital Gains Tax but your daughter, or son does not. How understanding will he or she be when you come to her and say: Dad and I want to sell our home and move to Mexico, and hey, you don’t mind paying the I.R.S. $35,000 in Capital Gains, do you? Your son or daughter just may refuse to sign the deed – then where will you be?

Federal estate taxes are expensive – they start at 37% and quickly go up to 55%. And they must be paid in cash, usually within nine months after you die. Since few estates have this kind of cash, assets often have to be liquidated. But estate taxes can be substantially reduced or even eliminated–if you plan ahead.

All of this is only a problem if you die. Do you really think you are going to die? Well, let’s see, if we looked at the latest mortality rate for humans it is 100%. Can you beat these odds? We would like to think we can, but chances are you won’t. But if you have a Living Trust you can lessen the burden on your family, and keep the money you earned in your estate for your family. I know you’re busy, and it can probably wait. wait until when? It’s time to set an appointment and just get it done!  Contact the experienced law firm of Diane Haisha-DeForest today, we are here to help