As the saying goes, “nothing is certain but death and taxes.” In the context of estate planning, this reality drives the estate planner’s desire to minimize taxes upon death as much as possible. In fact, the world of estate planning is consumed with the minimization of taxes in all of its forms. Attorneys and advisers have clients jump through legal and financial hoops in order to avoid or delay the payment of taxes, whether estate, capital gains, gift, income, etc. It is imperative that clients know if their assets will be taxed upon their death so that they can properly seek advice from their estate planning professional. This article provides a general overview of estate taxes.
Very generally, any property that a person owns at his passing is taxable including bank account, cash, securities, real estate, cars, etc. are includable in his gross estate. Contrary to popular belief, the death benefit of life insurance policies a person owns are taxable unless properly structured. Joint property, including joint bank accounts, is 100% includable in the estate of the first joint property owner to die except to the extent that the other joint owner can show that he contributed to the property. Business, corporate, and LLC interests are also includable in the gross estate as are general powers of appointment.
Deductions from the Gross Estate:
To determine the taxable estate, we need to reduce the gross estate by the applicable deductions. The IRS allows the following deductions from the gross estate which reduce the gross estate:
Not One, But Two: Both Utah and the federal government impose separate estate taxes on decedents who pass away with a certain amount assets. The government figures that death should be a taxable event because almost everything else you did in life was.
Federal Estate Taxation
The federal government currently taxes estates valued at over $5.12 million at a rate of 35% in 2012. If Congress does not act, the federal estate tax is scheduled to be 55% on gross estates of over $1 million in 2013 and beyond.
Utah taxes the estates of Utah residents if they are over $1,000,000. Non residents pay the tax only if their estate includes real property or tangible personal property located in Utah and worth over $1 million. Utah estate tax rates range from 5.6% to 16% for estates over $10 million and are expected to remain the same for the foreseeable future. Utah requires estates with a gross estate of over $1,000,000 to file form along with a federal estate tax return, even though one may not be required by the IRS (because the estate is under the federal filing threshold).
The tax thresholds mentioned above assume that the decedent did not make taxable gifts during his lifetime. A taxable gift is a gift made to a person above the annual gift tax exclusion amount, currently at $13,000. If taxable gifts were made, they reduce estate tax exemption amount to the extent that gift tax was not paid on them.
It is possible to avoid the sting of the estate tax by fully utilizing each spouse’s estate tax exemption, deferring taxes until the death of the second spouse and completely escaping taxes by gifting properly during life and/or after death.
The common facet of estate planning for everyone, however, is the need to take into consideration the potential tax consequences of estate planning. Both estate taxes and/or gift taxes can reduce the assets in your estate by as much as 55 percent without careful estate planning ahead of time. A basic understanding of how estate and gift taxes operate can help you see the need for thorough estate planning.
Taxes are something you have to pay all of your life, and if you do not plan ahead, they will be something your estates will be paying even after you are gone. So making sure that you get quality estate planning tax advice when you are arranging your final affairs is one way to ensure that your heirs, and not the IRS, receive the bulk of your estate.
While it may be trite to observe that no two individuals are the same, it is not a cliché to say that everyone of us can benefit from estate planning tax advice, if only to learn that we will not have to worry because our estates will not be large enough that a tax is applicable. The estates of those just beginning their careers may not require a lot of estate planning tax avoidance measures, while the estates of their grandparents very well might.
If you are concerned about whether or not you will need some estate planning tax help, but are not interested in paying an attorney until you are sure you will, your best option would be to find a good estate planning guide and study its it to determine if the total assets in your estate are likely to put it in the taxable category.
If you find that they are, it will be worth your while to discuss with an expert the estate planning tax strategies which will let you preserve as much of your assets as possible for your heirs. These strategies can include things placing your assets into a living so that you can control them during your lifetime, and prevent them from being included in your taxable estate when you die. Having a living trust will also benefit your heirs, because it will exempt you assets from being tied up in the expensive and lengthy probate process.
Getting estate planning tax advice on a continuing basis is important, because you may have to adjust your estate planning strategies as your financial situation and/or the estate tax laws change. Consulting with an estate planning tax expert as your circumstances change will ensure that your heirs are not left with any unpleasant surprises and that your final wishes will be honored as you desired. If you do follow the advice of an estate planning tax professional, make sure that you keep copies of all the estate planning documents. They will be essential in case you have the bad luck to deal with an unqualified party, and your heirs need to prove a claim of negligence.
While such a scenario may be rare, estate planning tax advice is not under the oversight of any specific government authority. So the quality of advice you get will depend to a great degree on the experience of you advisor, be it an attorney, accountant, banker, or financial planner. By using an estate planning guide to familiarize yourself with your options so that you know what questions to ask, you will have a much better chance of finding a trustworthy professional to provide your estate planning tax advice.
When the time comes for us to leave this earth, it is important for us to ensure that our assets are passed on to our loved ones. We may go about obtaining Free Life Insurance Quotes, just so that we can do our part for the family members that are left behind. The designation of assets may be of some concern, especially if there is not much to leave. At the very least, the beneficiary should have enough funds to handle any last minute affairs.
As we consider the assets we own, there will be the issues of which family member we leave them to. Parents without children may leave their treasures to their siblings or to their favorite charity. In many cases, it is easier to set up trust funds in advance, just to make certain that everything is handled when that time arrives. You don’t have to be wealthy to think about your survivors, in fact, with a decent life insurance policy, you can easily cushion the blow of your departure.
The size of our estate will obviously vary from one person to another, what that means is that there will be more to go around for everyone, including the tax man. As we put our plans together, it is a good idea to think about the assets that we hold in our possession and what will happen to them. For obvious reasons, we want to ensure that our spouse is properly taken care of, especially if there is a lot of debt to be covered. The last thing we want is for our assets to end up being seized before our beneficiary has the opportunity to receive it.
When you love someone you usually want what is best for them, this usually entails an attempt to leave everything for them. Of course, if you are considering distributing your treasures to more than one person, things could change a little. There are several methods that can be legally used to reduce your estate tax burden, not the least of which is a QFOBI or a charitable transfer.
There is a popular option for reducing your tax liability which is known as an Irrevocable Life insurance trust, (ILIT). The value of the insurance policy will reduce the expected value of your estate, thereby reducing the percent that you owe to the taxman. When planning your estate, if you choose to use life insurance as a reduction, make certain to familiarize yourself with any restrictions. Keep in mind that there is a three year waiting period before certain expectations can be met. As with other important documents, you should contact an attorney to help you understand the legal terminology.