ESTATE TAX PLANNING/ESTATE TAX PREPARATION

As you will see in the paragraphs that follow, the Estate tax system is complex and full of traps.

Our clients benefit from our experience in Estate tax matters by planning for the protection of as many assets as the law allows ... assets that otherwise would be unavailable to our clients’ beneficiaries.

We provide written estimates to our clients before we start working with them on Estate and Gift tax engagements. Please call us for additional information.

Based on the total picture of our clients’ assets, we provide them with:

• Net Worth statement
• Estate tax calculations
• Recommendations on gifting
• Recommendations on the need for trusts, wills, powers of attorney, and medical directives.
  Please note: these are legal documents that should be prepared by an estate tax attorney.

 

The Estate Tax Return

The preparation of an Estate Tax return demand attention to detail, not only because of all the different forms that must be filed and supporting documents that must be attached; but also, because experienced IRS agents ( many times IRS attorneys ) review most, if not all, federal Estate Tax returns submitted on behalf of decedents.

We prepare Estate Tax returns with great care and professional regard. Moreover, we prepare the state Estate Tax returns of all states.

We use our professional judgment in resolving questions where tax law is unclear, or where there may be conflicts between the taxing authorities’ interpretation of the law and other supportable positions. Unless otherwise instructed by our clients, we resolve such questions in the favor of our clients whenever possible.

 

Trusts

An integral part of estate tax planning is understanding the intricacies of Trusts.

Trusts are an important financial management tool for some persons ... Trusts do not benefit everyone. One more time: some persons need Trusts, others do not.

Years ago many Trusts were established mainly for tax reduction purposes ... today, however, most income tax benefits are gone.

You may need a Trust to:

• Designate a manager for your assets when you are not able to do so because of age, mental or physical incompetence. Of course, the Trust must be established prior to reaching incompetence.
• Assure a lifetime income to yourself.
• Provide for the distribution of your estate without the need of probate court interference.
• Protect the inheritance of your children with a former spouse.
• Shelter your assets above your Estate Tax exclusion.

A Trust is a legal document that should be prepared by an estate tax attorney. A word of caution ... not all attorneys are estate tax attorneys.

A Trust is an agreement under which one person (or more) places assets under the Trust’s name (the grantor), designates a person (or persons) to manage the assets (the trustee(s)), for the benefit of someone (the beneficiary(ies)).

There are generally two classes of Trusts: revocable (the grantor can change and terminate the Trust) and irrevocable (the grantor cannot change or terminate the trust). You probably have heard of many different types of trusts ... they all fall within these two classes.

 

Do You Need A Trust?

Depends on your particular set of financial circumstances. Several of our clients need only a Power of Attorney, a Will and a Medical Directive.

We assist our clients in identifying the Estate planning documents they need to protest their assets and to assure that their wishes on the distribution of those assets are carried out.

Moreover, we prepare the federal income tax and state (all states) income tax returns of our clients’ trusts.

 

The Federal Estate Tax System

At the time of death, a federal estate tax is imposed on property transferred by a decedent. This tax is imposed on the transfer of wealth. The measure of the amount of tax is the net value of those property rights which are transferred.

Property transferred at death includes the property which the decedent will directly own at the time of death. This might include, for example, the family residence, stocks, bonds and bank certificates of deposit which are in her name. Also included are items of personal property such as household furnishings and jewelry. However, property that is not owned directly at the time of death may also be subject to tax for federal estate tax purposes.

The purpose of the federal estate tax is to impose tax on the transfer of wealth at death, without regard to how that property transfer is accomplished. For example, if family members will succeed to property ownership at the time of the decedent’s death by reason of the property being held as joint tenants with the right of survivorship, and the decedent purchased that property, the estate tax will apply.

Similarly, if the decedent holds “incidents of ownership” (for example, the right to designate the beneficiary) of an insurance policy on her life, the proceeds will be includible in the gross estate.

Also includible will be property that the decedent has previously transferred in trust but over which he/she has retained certain rights and powers under the trust instrument. Some limited types of property will be included even where he/she has given up all rights in property, if the termination of such property rights occurs within three years of death.

The estate tax is imposed on a net estate basis. Thus, after identifying all the assets includible in the gross estate, certain deductions are available to offset that gross amount. These include funeral expenses, administration expenses, claims, and other debts and mortgages.

The amount protected from estate tax changes every year.

Assets which are not protected from tax by the exclusion will be taxed at rates above 45%. You may also owe state death or inheritance tax. As you can see, the scope of the estate tax is broad. Careful planning is necessary to assure that these tax traps are avoided.

 

Maximizing The Estate Tax Exclusion of Spouses

If the value of all assets owned by spouses exceeds the limits outlined above, an estate plan which results in the surviving spouse receiving all the assets will result in estate tax liability at the death of the second spouse. This, in turn, reduces the amount available for your children or other beneficiaries.

A married couple can escape estate tax on assets of up to twice the limits outlined above, if the couple’s wills are drafted and trusts are created to take full advantage of each spouse’s own credit.

The wills should provide that, when the first spouse dies, the amount protected from estate tax by the available exclusion passes to a trust (the “credit shelter trust”) from which the surviving spouse can benefit during his or her remaining lifetime but which will not be included in the surviving spouse’s estate at death.

Please call us for additional information.

-DISCLAIMER-