If you have significant wealth, you may be exposed to future estate tax burdens that must be acted on before the Tax Cuts and Jobs Act reduces the estate tax exemption in 2026. Developing and implementing the right estate planning and tax strategies takes time. You may need to prepare regardless of whether the estate tax continues at its current level or if it is cut in half. This means strategizing to minimize your estate tax liability now.
Meet the Andersons, a well-off family living in a state with a high cost of living. Robert Anderson, the father, is a successful entrepreneur who built a thriving business over the years. His wife, Sarah, is a high salary earner, and together they have accumulated a substantial estate of $8 million each, for a total of $16 million. Their estate is primarily composed of their business assets, valuable artwork, life insurance, a family residence, a vacation home, and other lucrative investments. They have two adult children, James and Emily, both actively involved in the family business.
With the generous federal estate tax exemption set at $10 million adjusted for inflation per individual in 2017, steadily increasing to $13.61 million in 2024, the Andersons have felt relatively secure about avoiding estate taxes. Their primary concern has been preserving the family legacy and ensuring a smooth transition of their assets (business, accounts, and property) to the next generation. They had taken some initial estate planning steps, such as creating a living trust, discussing the use of a family limited partnership, and exploring gifting strategies to transfer the assets to their children gradually.
If the estate tax exemption drops to $5 million adjusted for inflation, the Andersons may face several estate tax issues that require professional advice and assistance before the end of 2025. The Andersons need to find other ways to protect their money and property.
The family business represents a significant portion of the Andersons’ estate, and the sunsetting of the higher exemption amount could have profound implications for its continued viability. Robert and Sarah need to develop a comprehensive business valuation and succession plan now to minimize the total estate tax burden and ensure a smooth ownership transition to James and Emily later.
Given the potential changes in the estate tax landscape, the Andersons need to revisit the valuation of their financial accounts, retirement and life insurance investments, personal property, real estate, and artwork to ensure accurate assessments. Then they need to determine which items will affect the estate tax calculation and any remaining exemption they have left from prior legacy planning. Depending on their assets’ values, these items can easily put them over the potentially soon-to-be lower estate tax exemption, exposing them to a 40 percent tax rate.
With the uncertainty surrounding the estate tax exemption, the Andersons may want to consider accelerated lifetime gifting strategies to reduce their taxable estate while the higher exemption is in place. The Internal Revenue Service declared in 2019 that individuals who take advantage of the increased gift tax exclusion from 2018 to 2025 will not be negatively impacted after 2025 if the exclusion amount drops.1 Gifting up to $13.61 million in 2024 has a zero tax liability. But gifting over $6.4 million in 2026 may have major consequences.
The Andersons may want to use life insurance to ensure that their loved ones are provided for at their passing. They may want to consider creating an irrevocable life insurance trust to own the life insurance policy and be the recipient of the death benefit. This removes the value of the policy from the Andersons’ estate and protects the death benefit for their chosen beneficiaries.
The significant portfolios of high-net-worth and ultra-high-net-worth families may require advanced tax planning techniques, including an AB trust, to optimize each spouse’s estate tax exemption and potentially minimize their estate tax liability. At the client’s death, an amount equal to the current estate tax exemption amount is placed in one trust, which uses the exemption, and the remainder is placed in a second trust for the surviving spouse’s benefit, which qualifies for the unlimited marital deduction. This results in no estate tax being owed at the death of the first spouse.
Spouses are able to give an unlimited amount of money and property to each other without having to worry about estate or gift tax. Because of this, some clients may not have an estate tax issue at the first spouse’s death because everything (or a substantial portion) went to the surviving spouse. Because they are utilizing the unlimited marital deduction, the deceased spouse’s exemption is not needed. However, even if this is the case, it may be advisable to file an estate tax return at the first spouse’s death to document how much of that deceased spouse’s exemption is being used, if any, and that the remainder is going to the surviving spouse. This will allow the surviving spouse to add the deceased spouse’s unused exclusion (DSUE) to the surviving spouse’s own exemption amount and apply that combined amount against their own estate at the time of death.
If the Andersons are philanthropically inclined, another great option would be to engage in charitable giving through the use of a charitable remainder trust. Setting up this type of trust can be time-consuming—sometimes the process is fairly straightforward but often highly complex, requiring advanced planning and consideration.
If your situation is similar to the Andersons, expert guidance is necessary to address estate tax issues and help you evaluate the impact of the potential sunsetting of the higher estate tax exemption amount on your estate. Contact us to learn more about strategies to protect, preserve, and pass down valuable property.
1 Estate and Gift Tax Facts, IRS.gov, https://www.irs.gov/newsroom/estate-and-gift-tax-faqs# (last updated Dec. 5, 2023).
The year 2026 is quickly approaching, bringing substantial changes that may affect your estate tax situation. The Tax Cuts and Jobs Act (TCJA) in 2017 significantly increased the federal estate tax exemption to $10 million adjusted for inflation. This is the amount you can gift or leave to your loved ones at your death without incurring a gift or estate tax liability. Any portion of the exemption used during lifetime reduces the total exemption amount available at death for estate tax purposes.
However, the countdown has begun for the potential sunset of this generous exemption by the end of 2025. Adjusting for inflation, the Congressional Budget Office estimates the new exemption amount will be $6.4 million in 2026.1 There are strong arguments for and against the changes in legislation. Whether the current exemption amount remains or is reduced to roughly $6.4 million, valuable insights from professional advisors can prepare you for either scenario. What is not taxable today might be taxable tomorrow.
The federal estate tax was first enacted in 1916 to generate revenue for the government. Over the years, it has undergone various changes in exemption limits and rates.
The Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA) gradually increased the estate tax exemption and reduced the tax rate until it reached zero in 2010.2 However, the estate tax was set to return to the 2001 amounts for deaths occurring in 2011 unless further legislative action was taken.3 In 2011, the estate tax exemption was reinstated at $5.0 million.4
In 2017, the TCJA doubled the estate tax exemption from $5.49 million to nearly $11 million to stimulate economic growth and create jobs.5 The exemption continues to adjust for inflation, offering individuals an unprecedented opportunity to pass on substantial wealth free from federal estate tax. In 2024, the este tax exemption is $3.61 million.
A sunset provision was embedded within the TCJA to limit how long the higher estate tax exemption could continue. Without legislative intervention, it will be cut in half to $5 million adjusted for inflation in 2026, creating a potential estate planning crisis for people with considerable estates on December 31, 2025. Adjusting for inflation, the Congressional Budget Office estimates the exemption amount will be $6.4 million in 2026.6
Maintaining or increasing the already high estate tax exemption amount could be seen as a move that benefits the wealthy, broadening the tax burden for others. It can also be seen as maintaining the status quo. And the current law ensures that most people will not be subject to federal estate taxes.
A higher estate tax exemption was expected to foster economic growth and capital investment by allowing wealthier individuals and families to reinvest in businesses and job creation.7 Yet the federal government relies on estate tax revenue to fund various programs and therefore would not want to reduce a lucrative revenue source. Without the estate tax, other revenue sources would have to foot the bill for these programs and potentially face cuts in the benefits and services provided.
For the estate tax exclusion to remain at the higher amount beyond 2025, Congress will need to take action.
The TCJA was part of a short-term tax cut package. Lawmakers had to make room in the budget for the tax cuts introduced by the legislation.8 They did this by temporarily increasing the estate tax exemption.
Reverting to a lower exemption amount is believed to generate more revenue by increasing the number of people who pay the tax and increasing estate tax exposure to those with net wealth above the current exemption amount. Estate tax revenues are projected to increase sharply after 2025, when the exemption amount is scheduled to drop. From 2021–2031, the combined estate and gift tax revenues are projected to total $372 billion.9
As we move into 2024, it is crucial to review estate planning goals and strategies that may be affected by potential changes in the federal estate tax exemption law. By working together with your other trusted advisors, we can reevaluate your current estate plan to ensure that you are protected and your financial legacy is preserved.
1 Understanding Federal and Gift Taxes, Cong. Budget Off., https://www.cbo.gov/publication/57272 (last visited Jan. 2, 2024).
2 Darien B. Jacobsen et al., The Estate Tax: Ninety Years and Counting, SOI Bull. 124, https://www.irs.gov/pub/irs-soi/ninetyestate.pdf (last visited Jan. 2, 2024).
3 Id.
4 Mark Luscombe, Historical Look at Estate and Gift Tax Rates, Wolters Kluwer (Mar. 9, 2022), https://www.wolterskluwer.com/en/expert-insights/whole-ball-of-tax-historical-estate-and-gift-tax-rates.
5 Tax Cuts and Jobs Act (TCJA), Tax Found., https://taxfoundation.org/taxedu/glossary/tax-cuts-and-jobs-act (last visited Jan. 2, 2024).
6 Understanding Federal Estate and Gift Taxes, supra note 1.
7 Id.
8 How Did the Tax Cuts and Jobs Act Change Personal Taxes?, Tax Pol’y Ctr., https://www.taxpolicycenter.org/briefing-book/how-did-tax-cuts-and-jobs-act-change-personal-taxes (last visited Jan. 2, 2024).
9 Understanding Federal Estate and Gift Taxes, supra note 1.
As individuals embark on the journey of estate planning, they find themselves engaged in a delicate balancing act. Their objective is to strike a harmonious equilibrium between minimizing income and estate taxes, safeguarding their assets from potential creditors, and ensuring that their loved ones receive the utmost benefit. To achieve this equilibrium, it is necessary to explore the available legal and financial instruments that can bring their estate plan to fruition.
One crucial consideration when creating an estate plan is the reduction of income and estate taxes. These taxes can significantly diminish the amount of wealth and property received by beneficiaries. To minimize estate taxes, various strategies can be employed, such as gifting assets to loved ones or establishing trusts on their behalf. Additionally, leveraging tax-advantaged investment accounts can be an effective means of reducing income taxes. The optimal approach will depend on an individual's unique financial circumstances and the desired outcomes of their estate plan.
For those seeking to reduce the amount of money and property subject to estate tax, making gifts during their lifetime can prove advantageous. The current annual gift tax exclusion for 2023 allows for $17,000 per recipient ($34,000 for married couples making joint gifts), and individuals can give away up to a total of $12.92 million during their lifetime without triggering federal estate tax. By transferring accounts and property, the income tax burden can also be shifted to recipients who may find themselves in lower tax brackets, resulting in reduced tax liabilities on generated income. However, it is important to consider the potential capital gains tax implications for recipients if the value of the assets appreciates significantly. Additionally, once assets are transferred, individuals lose control over how the money is spent or how the property is utilized, and the assets may become vulnerable to the creditors or divorcing spouses of their loved ones.
Creating trusts is another avenue for tax savings. Trusts serve as legal entities that can hold and manage accounts and property on behalf of beneficiaries. By utilizing irrevocable trusts, income taxes on the trust's generated income can be paid by the trust itself as a separate entity, thereby allowing the trust's accounts and property to grow free from estate taxes for the beneficiaries. However, establishing such trusts may necessitate the use of annual gift tax exclusions or lifetime gift and estate tax exclusions. Certain types of irrevocable trusts can also provide asset protection, as the transferred accounts and property are considered separate entities. Nonetheless, relinquishing control over the trust becomes a requirement going forward.
Optimizing tax savings can also be achieved through the utilization of tax-advantaged investment accounts like IRAs and 401(k)s. These accounts offer opportunities to defer taxes on contributions and investment earnings until retirement, potentially resulting in a lower tax bracket during distribution. Roth IRAs and Roth 401(k)s provide an alternative by allowing after-tax contributions and tax-free withdrawals of earnings. By thoughtfully considering and utilizing these diverse investment accounts, individuals can potentially maximize tax savings and increase the overall value of their estate.
In addition to tax considerations, it is crucial to contemplate protecting assets from potential creditors when developing an estate plan. Insufficient asset protection measures may expose accounts and property to seizure for debt repayment or legal judgments against individuals or their beneficiaries.
One way to safeguard your accounts and property from creditors, including potential Nevada estate tax implications, is by establishing a trust with specific provisions. Trusts can be structured to create a level of separation between your assets and any potential creditors. For example, if your loved ones have a history of overspending or face potential creditors, incorporating a spendthrift trust into a revocable or irrevocable trust can be beneficial. This type of trust restricts beneficiary access to the trust's accounts and property, making it more difficult for creditors to seize them.
However, it's important to note that a spendthrift provision alone does not offer adequate protection from creditors. To further enhance creditor protection, a discretionary trust can be utilized. In a discretionary trust, the trustee has the discretion to determine when and how to distribute money and property to the beneficiary, thereby preventing distributions vulnerable to seizure by creditors. The choice of trustee is crucial for the level of creditor protection. An independent trustee, not related to or subservient to the beneficiary, is ideal. A well-drafted discretionary trust limits the beneficiary's access to the trust's accounts, property, and income. If the trust retains the income generated by its assets and doesn't distribute it to the beneficiary, the income may be taxed at the trust's income tax rate, unless the trust is structured in a way that holds the trustmaker responsible for the tax liability. Both provisions can be incorporated into either a revocable or irrevocable trust.
It's worth noting that different tax rules apply to trusts and individuals when it comes to income tax. Individuals are subject to a graduated tax system, with tax rates increasing as income rises. For the tax year 2023, individuals face a maximum marginal tax rate of 37 percent, which is applicable to income surpassing $523,600 for individuals and $628,300 for married couples filing jointly. Conversely, trusts are governed by a compressed tax bracket system, where any income over $13,451 is subject to the top marginal tax rate of 37 percent. Consequently, trusts may face a higher tax rate on the same amount of income compared to individuals in similar tax brackets.
For individuals aiming to safeguard their accounts and property from their own creditors, specific types of irrevocable trusts should be considered. As previously discussed, an irrevocable trust entails surrendering control over the assets held within it, potentially resulting in a higher tax liability on the trust's income if it remains undistributed to beneficiaries or lacks a structure to hold the trustmaker responsible for the income tax obligation.
While saving on taxes and protecting assets from creditors are vital aspects of estate planning, giving beneficiaries maximum access to their inheritance is also important. This is particularly relevant if you want to support their needs and provide flexibility in how they utilize their inheritance. To achieve this, you can structure your estate plan in a way that allows unhindered distributions to beneficiaries. Options include creating a revocable living trust with lenient distribution instructions or outright giving assets to beneficiaries during your lifetime or at your death. However, providing unrestricted access to inheritance carries certain risks. Beneficiaries might be tempted to spend the money unwisely or mishandle the property, potentially making them targets for fraud or manipulation. Moreover, this approach may expose them to creditors and legal claims like divorce. Thus, it's crucial to carefully consider the advantages and disadvantages of granting maximum access to beneficiaries and implement safeguards to mitigate potential risks.
Estate planning requires a thoughtful balance of various factors and interests. Evaluating your goals and priorities and determining the most suitable approach is essential. We are dedicated to assisting you throughout this intricate process, guaranteeing that you achieve the desired equilibrium. Contact us today to begin or review your estate plan, taking into account Nevada estate tax.
We extend our warmest congratulations on your new home purchase. Whether this is your first time buying a home or an upgrade/downsize, acquiring a new home is a significant event that brings about change in your life. Properly prepare for the worst by protecting your newest accomplishment. Here are three essential tips to keep in mind now that you have the keys to your new home, including important considerations for estate planning.
1. Make Sure to Update Your Address
After moving into your new home, it is crucial to update your address with the relevant authorities. Start with visiting your local United States Postal Office to obtain a form for change of address. Alternatively, you can update your address online. This step will help the postal service forward your mail to your new address.
It is also a crucial step in protecting your property to update your address with the Internal Revenue Service (IRS) by filling out Form 8822. This will ensure that you receive all important tax notices and refunds. Additionally, make sure to update your address with your local state tax agency.
2. Ensure Consistency Between Your Home Title and Estate Plan
One aspect of new homeownership that often goes overlooked is the need to align your home title with your estate planning objectives. After purchasing your new home, review the deed to confirm how the property is titled. Next, review your estate planning documents to ensure the property has been titled correctly to achieve your estate planning goals.
For instance, if your previous plan included a specific provision for the distribution of your old property, you will need to update this provision to reflect the current status. Similarly, if you have a trust-based estate plan to avoid probate, you will need to confirm that your new property is titled in the name of the trust and not in your individual name. Ensuring consistency between your home title and estate plan will help protect your assets and ensure your wishes are carried out effectively.
3. Review Your Life Insurance Policy and Beneficiary Designations
If you have a mortgage payment to make on your new home, it's likely you'll have a large monthly expense to pay off each month. To safeguard your loved ones, it is important to review your life insurance coverage. Ensure you have adequate life insurance coverage to address the mortgage payment in the event of your passing, particularly if you have a surviving spouse or children who are likely to remain in the home. Even if they decide not to reside in the property, life insurance can offer valuable resources during a potentially emotionally difficult period. Even if they choose not to stay in the home, life insurance can provide valuable assets during what can be an emotionally challenging time.
It's also a good idea to review your beneficiary designations. Life changes can happen quickly, and this may be overlooked. If your designations don't match up with the rest of your estate plan, you might inadvertently disinherit a family member or have the money go directly to an individual without any guidance.
Finally, with your new home comes the need for homeowner's insurance. Contact your insurance agent to confirm that you are receiving all eligible discounts. Many insurance providers offer package discounts when you combine services. By already having car insurance with the same company as your homeowner's insurance, you may qualify for a lower rate compared to purchasing each policy separately. Additionally, homeowners often receive discounts that renters do not.
We understand that buying a new home is a significant milestone, and we are here to assist you. If you need help aligning your new purchase with your estate planning goals, contact us today. We can ensure that your new home and estate planning are aligned to achieve your objectives, including the important aspect of estate planning for homeowners.
As with all things, there is a time for filing taxes, and it's approaching quickly. As soon as January 31st, you'll begin receiving crucial tax documents. Whether you're submitting as an individual or managing an estate or trust, it's time to begin preparations for the April 18th, 2023 tax deadline.
Form 1040 is the one used by individuals and married couples to file their yearly income taxes. Keep an eye out for forms indicating your overall income for 2022 in your mail and online, as soon as this January. Here are some of the forms you may need to finish your Form 1040:
It's crucial to keep records of items that can lower your taxable income, such as IRA and health savings account contributions, as well as documents that support tax deductions or credits, such as charitable contributions and mortgage interest. These records will assist you in taking advantage of all the possible tax benefits for which you are eligible.
"As an executor of an estate or trustee of a trust, you are responsible for reporting any income over $600 earned by the estate or trust on Form 1041. Even if the income earned is less than $600, if a beneficiary is a nonresident alien, the form must still be filed. However, the beneficiaries, not the estate or trust, are responsible for paying the income tax on the income received. Examples of assets that may generate income for an estate or trust include mutual funds, rental property, savings accounts, stocks, or bonds."
The due date for filing a return for an estate or trust depends on whether it follows a calendar or fiscal year. For those that follow a calendar year, the return must be filed by April 18, 2023. However, for those that follow a fiscal year, the return must be filed by the 15th day of the fourth month after the end of the tax year. The executor or trustee can choose which framework to use. Many opt for a fiscal year, which starts on the date of the grantor’s death and finalizes on the last day of the month prior to the death anniversary. This schedule provides more time for tax planning. If a calendar year is chosen, the tax year starts on the date of death and ends on December 31st of the same year.
Both trustees and executors must report all income distributions given to beneficiaries on the Schedule K-1. You also have to provide a copy of the Schedule K-1 to each respective beneficiary who received an income distribution, and the beneficiaries must report the distribution amount when they file their personal income taxes. The deadlines to submit Schedule K-1 follow the same guidelines as Form 1041 and depend on whether it’s subject to a calendar or fiscal year framework. Since the beneficiaries must report this income on their personal tax returns, it is essential to send them the Schedule K-1 as soon as possible so they have ample time to report the income.
As the trustee or executor, it is important to gather and keep track of your own fees, fees paid to professionals like accountants or lawyers, any administrative expenses, and distributions given to beneficiaries. This way, you can report them on Form 1041, which supports the tax deductions claimed for the trust or estate.
It is important to take into account the impact of income taxes when it comes to estate planning and administration. This is true whether you are an individual creating / updating your own estate plan, or administering a trust or estate on behalf of a loved one. If you have any questions on how income taxes should factor into your planning or administration decisions, please contact the estate planning professionals at Anderson, Dorn & Rader.
The days are flying by, and before you know it, the New Year will be here. Plan ahead and fine-tune your gift giving before the holiday chaos ensues. It’s possible to make annual, medical, and educational exclusion gifts that aren’t technically considered as such under federal gift tax law.
Annual exclusion gifts are one type that you can give that do not trigger federal gift tax. For the year 2022, the gift tax threshold is $16,000 per person. That is expected to increase to $17,000 in 2023.
With annual exclusion gifts, assets amounting to $16,000 or less that are given to an individual within the calendar year are not considered gifts (for tax purposes at least – the recipients will still be thankful!).
Hypothetically, that means you can gift assets amounting to $16,000 or less to as many individuals you’d like up to December 31st of this year, then follow that gifting criteria again for the same recipients on January 1st, 2023 without having to file them under federal gift tax law.
Some sources may indicate that married couples are able to effectively double the annual exclusion amount ($32,000 per calendar year). Even if a married couple abides by this threshold, in some cases they may still be required to file a gift tax return. We recommend consulting our estate planning services to see if you need to report these “split gifts”, as they’re referred to.
Qualified medical exclusion payments / gifts are another type of transfer that aren’t considered ‘gifts’ under federal tax law.
To take advantage of medical exclusions, one must make a payment directly to a healthcare institution or medical insurance provider. Generally, this exclusion can be applied to any medical expense qualifying for a deduction under federal income tax guidelines.
For instance, you could have given $20,000 to the hospital that your grandchild was treated in for an emergency procedure earlier in the year, then give the same grandchild up to an additional $16,000 amount before December 31st, 2022. You could even go as far as to gift another $16,000 on January 1st, 2023. Even in this extreme example, these gifts would not trigger the federal gift tax threshold, as long as they are accounted for and transferred with the exclusions in mind.
An important note: the medical exclusion gift / payment must be made directly to the medical institution or medical insurance provider, not the individual receiving the medical care or insurance money. Even if the payment is “earmarked”, the patient cannot touch it, or the federal tax law will kick in and consider it a gift.
Gifted assets that meet the criteria of educational exclusions are another type of transfer that aren’t considered ‘gifts’ under federal tax law. This includes qualifying payments made directly to both domestic and foreign institutions.
So hypothetically, you could pay for your grandchild’s emergency procedure (referenced above), pay for their educational tuition amounting to $25,000, give them an additional $16,000 by December 31st, then give them $16,000 on January 1st, 2023. That’d be one thankful grandchild, and you likely wouldn’t trigger any federal gift tax returns.
Remember two things before initiating an educational exclusion gift: First, the payment must be made directly to the educational institution, not to the individual enrolled. Next, the payment can only be put towards tuition. Not supplies, books, dorm payments, or other related educational expenses.
It can be exciting to gift money and property to loved ones. After all, they will carry on your legacy in the future. While it’s tempting to simply transfer it to the recipient’s bank account, consider the guidelines surrounding annual, medical, and educational exclusion gifts to avoid the burden of taxes and maximize your financial picture. For assistance in doing so, contact the experienced Reno estate planning attorneys at Anderson, Dorn & Rader. We are happy to walk you through the process to make it enjoyable for all parties involved.
In the attempt to progress towards a modern US tax system, the Biden administration has proposed a number of changes to the current tax code. According to a publication released by the U.S. Treasury early this year, they hope to push these changes through Congress which is necessary to gain approval for the amendments. It’s true that many Americans are divided on the best methods for stimulating the US economy, however, one fact remains undoubtable - careful estate and tax planning is crucial for the wealth and financial security of American families.
The Greenbook, a publication that provides information regarding the Administration’s revenue proposals, details the proposed changes which will ultimately impact estate planning in numerous ways. Many of the effective estate planning strategies that have been diligently defined by professionals in the industry for decades may be discarded. However, this could also enhance certain processes in estate planning by implementing other key strategies.
Notably, the reduction of estate and gift tax exemption amounts is absent from the list of proposals. While it’s possible that this could change in the future, we know that for now, these tax exemptions remain extremely high. It’s important to understand the law as it is written today so that you can make appropriate decisions with your assets and prepare for other coming changes.
As it stands today, the estate tax laws that were passed under the Trump administration will expire and reset to the prior laws starting in 2026. If there is no action made by Congress to change this, the reset will restore the estate and gift tax exemption amount to $5 million, as it was in 2016. However, the rate of inflation must also be included in this amount which brings the total to roughly $6.6 million by 2026.
With this information in mind, it’s crucial that you do all you can now to determine the expected return on your investments for the future. To do this, you should consider the average rates of return on your current investments, compounded annually. Many people have found that a healthy return of 7% annually could double one’s net worth in just 10 to 12 years. However, if estate tax exemption amounts are reduced by roughly 50% and continue to increase with the inflation rate, you risk having to pay significantly high estate tax rates.
It can be difficult to prepare for the uncertainties that may affect your tax and estate planning strategies. Without knowing what the future holds, how do you determine the best way to protect your assets? To make a more accurate decision, some of the other Greenbook proposals should also be considered, such as:
These changes haven’t been approved yet by Congress, but their consideration could help sway your strategic plans. The following strategies are still effective tools under current tax law, and implementing them now could provide significant tax savings.
A grantor retained annuity trust (GRAT) is an estate planning strategy that allows the grantor to contribute appreciating assets to chosen beneficiaries using little or none of your gift tax exemption. To do this, you would transfer some of your property or accounts to the GRAT in which you will still retain the right to receive an annuity. Following a specified period of time, the beneficiaries will receive the amount remaining in the trust.
Another estate planning strategy that may be beneficial for you is to gift seed capital, typically in the form of cash, to an intentionally defective grantor trust (IDGT). You will then sell appreciating or income-producing property to the IDGT in which they will make installment payments back to you over a period of time. If the account or property increases in value over the period of the sale, the accounts or property in the trust will appreciate outside your taxable estate and will therefore avoid estate taxes. Additionally, the trust does not have to pay income taxes on the income the trust retains since the taxes are already paid on the income generated and accumulated in the trust.
In a spousal lifetime access trust (SLAT), the grantor is to gift property to a trust created for the benefit of their spouse and possibly their beneficiaries. An independent trustee can make discretionary distributions to those beneficiaries, which can also benefit you indirectly. Contrary, an interested trustee should be limited to ascertainable standards when making distributions, such as health and education. With this estate planning strategy, you can take advantage of the high lifetime gift tax exemption amount by making gifts to your spouse. This trust avoids the use of the marital deduction which means the assets in the SLAT will not be included in either your or your spouse’s gross estate for estate tax purposes.
Finally, there are irrevocable life insurance trusts (ILITs). This trust allows leveraging life insurance to ease the burden placed on your estate if it becomes subject to estate tax at your death. This type of trust is established by transferring an existing life insurance policy into the ILIT in which you make annual gifts to the trust in order to pay the premiums on the policy. At your death, the trust receives the insurance death benefit and distributes it according to the trust’s terms. The death benefit and the premiums gifted to the trust are completed gifts, meaning your estate would not include any of the trust’s value.
We are holding a series of webinars over the coming weeks, from which you can obtain a great deal of useful information. Just choose the session that fits into your schedule. The webinars are being offered on a complimentary basis, so you have everything to gain and nothing to lose. This being stated, we do ask that you register in advance so that we can reserve your seat.
To sign up for an estate planning webinar, visit Anderson, Dorn & Rader here. Once you find a date that is right for you, click on the button that you see and follow the simple instructions to register. For more information regarding estate tax exemptions and planning, connect with our estate planning attorneys today.
SPEAK WITH AN ESTATE PLANNING ATTORNEY
In 2001, Congress passed a law that made big changes to the estate tax. It raised the amount that could pass without tax, increasing it in steps from $675,000 in 2001, to $3.5 million in 2009. Then, in 2010, the estate tax was repealed for one year only-2010. The same law also said that the estate tax would return in 2011, with estates over $1 million being taxed as high as 55%. However, on December 17, 2010, Congress revised the estate tax with yet another new law: the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 (“TRA 2010”). The new law set the amount that could pass without tax at $5 million per person for 2010-2012. However, the new law is temporary and will expire after 2012. In 2013, the amount that can be passed free from tax will go back down to $1 million per person. Thus, unless the law is changed again between now and then, someone dying in 2013 would only be able to pass $1 million without an estate tax. In addition, the new law reduces the top estate and gift tax rate to 35% in 2010-2012. However, a top rate of 55% returns in 2013 and thereafter.
Congress also introduced a new “portability” provision. This is where one spouse can add their deceased spouse’s estate tax exclusion to their own exclusion, to shelter more from taxes. This portability provision, also known as the “Deceased Spousal Unused Exclusion Amount” can be used to shelter the assets of the surviving spouse. While intriguing on the surface, under current law this portability tax benefit only happens if both spouses die in 2011 or 2012. If either spouse hangs on until 2013 or beyond, there is no portability option available. Therefore, unless both spouses plan on passing away during those two years, creating an estate plan is still essential. Contact our office to learn more about how the portability provision could affect your estate plan.
So, what’s the gist of the new law? Prior to TRA 2010 we were facing a return to the $1 million estate tax exclusion on January 1, 2011. Now, we are still facing a return to the $1 million estate tax exclusion; it’s just put off for two years now–to January 1, 2013. The bottom line is that TRA 2010 is temporary. In two years, it will disappear as though it had never existed.
While planning to minimize or avoid estate taxes is certainly an important reason to meet with an estate planning attorney, creating an estate plan is about much more than protecting your beneficiaries’ inheritance from estate taxes. Planning for your estate and your legacy can protect your beneficiaries and the assets you leave them from their creditors, a future divorce, and even their own misjudgment. Estate planning is also about providing protections during lifetime, such as avoiding a guardianship or conservatorship proceeding if you’re incapacitated and protecting your nest egg from the possibility of an extended stay in a nursing home.
The Kiddie Tax can apply to the unearned income of children. Read on to learn if this tax applies to you or your children. Also, learn ways to avoid the Kiddie Tax.
Receiving an inheritance from a loved one can be thrilling, but for some it may also cause some concern. In fact, there are a host of questions you may have when you receive the news that an inheritance is coming your way - including, "Does this mean that I'm going to have to pay tax on this inheritance?" Inheritance tax is different from estate taxes, which is also different from (although related to) the gift tax. Whether or not you will be required to pay an inheritance tax depends on which state you, the beneficiary, live in. Here are the answers to five common inheritance tax questions as it applies to beneficiaries that are residents of Nevada.
In general, an inheritance tax is a tax levied on money or property received from the estate of someone else. In those states that still impose an inheritance tax, the rate will depend usually on the type of beneficiary you are. In other words, spouses and children of the deceased are generally taxed at a much lower rate than others. In some states, certain categories of heirs are exempt from the tax completely.
No, you don't need to worry about a Nevada inheritance tax! Nevada is among the majority of states that does not impose an inheritance tax. The federal government no longer levies an inheritance tax either. Beneficiaries of an estate will inherit the estate tax-free, and they receive a "step-up" in basis that can allow them to sell those assets immediately without paying capital gains tax.
Basically, the difference between inheritance taxes and estate taxes is who is responsible for paying. Inheritance taxes are paid by the person receiving the money or property from someone else. Whereas, estate taxes are due from the estate of the person who has died, when the property is transferred to heirs and beneficiaries. The estate tax laws vary from state to state, and Nevada is one that does not impose an estate tax for those individuals that die as residents of Nevada or owning property in Nevada. For federal tax purposes, the federal government will only tax the deceased person's estate if the value of the estate (including prior gifts made above the annual exclusion amount) exceeds $5.45 million in 2016.
Receiving a gift from someone who is still living is different from receiving an inheritance. You, as the beneficiary, will not be required to pay taxes on the receipt of a gift. Instead, the person making the gift is responsible for paying the applicable taxes. This is the "gift tax." There should not be any immediate tax consequences for the gift recipient because gifts are not included as part of your taxable income. But, there may be future tax consequences if you sell the gifted property later. The recipient of the gift receives a "carry-over" basis, which means that if they later sell the gifted property they may be responsible for paying the capital gains tax.
You can reject an inheritance if you choose to, and in some cases, it may be a good idea. Understand though, that rejecting an inheritance requires more than simply telling the executor you do not want the assets you are set to receive. There are laws that govern the proper way to disclaim an inheritance. Essentially, if you need to make sure you are not considered the legal owner of the inherited property, there are specific steps that must be taken. To make matters worse, there are very strict rules about the timing required to properly disclaim an inheritance.
In order to correctly disclaim an inheritance, you need to put your disclaimer in writing and deliver it to the person in control of the estate. In most cases, that person is the executor of the estate, or trustee of the trust, that holds the property. In most cases, the disclaimer should be submitted to the executor or trustee within 9 months of the person’s death. The most important thing to remember is that you must not accept any benefit from the property if you want to actually reject the inheritance.
If you believe it is in your best interest to reject an inheritance, it is very important that you discuss this decision with a Nevada inheritance planning attorney before you take any action. Your attorney can take whatever steps are necessary to ensure that your disclaimer is handled properly. Ultimately, receiving proper legal advice can decrease your chances of facing problems in the future. As with any estate plan, your inheritance plan should address both your present and future financial goals.
If you decide to ultimately accept the inheritance, then you need to consider the nature of the assets you will be inheriting. If you are married, there are important steps that should be taken if you want to keep the inherited assets separate from the marital assets. If you need to sell an inherited asset, but you wait too long to do so, you could increase the risk of unfavorable tax consequences. Also, it is important to determine how you will handle any retirement accounts you may inherit, including planning for how you will withdraw the retirement funds. Understanding your options, while creating a plan that will protect you from potential tax consequences, is an important part of inheritance planning.
If you have questions regarding Nevada inheritance tax, estate tax, gift tax, or any other estate planning issues, please contact Anderson, Dorn & Rader, Ltd. for a consultation, either online or by calling us at (775) 823-9455.
To learn more, please download our free Nevada capital gains tax here.
During this Holiday season, the majority of us get wrapped up (pun intended) in giving. 'Tis the season, right? But did you know that certain gifts may be subject to a transfer tax?
Whenever ownership of property is transferred, the IRS imposes a “gift tax.” What is considered a gift? According to the government, a gift is “any transfer to an individual, either directly or indirectly, where full consideration is not received in return.” Despite the general rule that all gifts are taxable, there are some exceptions. For example, tuition or medical expenses you pay for someone else are not taxable. Also, gifts to a spouse, certain political organization or qualified charities are deductible from your taxes.
The most important exception is the Annual Gift Tax Exclusion, which provides that gifts not exceeding the annual exclusion amount for that calendar year are not taxable. The Annual Gift Tax Exclusion for 2015 is $14,000 per recipient. In plain language, this means that you can give away as much as $14,000 per recipient during the year to anyone you choose without any tax consequences. These gifts can be to anyone, including family, friends or strangers. You and your spouse can also combine your gift tax exclusions, meaning the gift can be for as much as $28,000 for each recipient, if it is given as a joint gift.
This is not to imply that you cannot make a gift larger than $14,000 per recipient per year. If you make a gift that exceeds the annual exclusion amount, the gift must be reported to the Internal Revenue Service any applied against your unified credit (discussed below).
The annual gift exclusion only applies to gifts of “present interest.” This means that the person must receive an unrestricted right to immediate possession, use and enjoyment of that particular gift. For example, cash left in an envelope hanging on the Christmas tree is a gift that conveys a present interest. On the other hand, an irrevocable trust that does not allow the beneficiary to have access to the money until they reach a certain age is an example of a gift of a future interest.
The gift tax and estate tax exclusions are often referred to as the unified credit. Together they entitle you to a lifetime exclusion of $5.43 million (in 2015), meaning that $5.43 million of your estate will be exempt from inheritance or gift taxes. To the extent a gift made during a year exceeds the Annual Gift Tax Exclusion, then your unified credit is reduced by that amount. In other words, if you make a gift to an individual in the amount of $1,014,000, the gift will not be taxable but will reduce your estate tax exemption to $4.43 million upon your death (the $5.43 million unified credit, less the $1 million gift that exceeds the Annual Exclusion Amount). The unified credit is also “portable,” meaning that if you do not use the full amount of your tax credit the remainder may pass to your spouse when you die.
If you exceed the $5.34 million lifetime exclusion amount, you will be required to pay as much as 40% tax on any transfers made either during your life (as gifts) or upon your death (passed on as an inheritance). One exception is a gift made to your spouse, as long as he or she is a U.S. citizen. Those gifts are considered tax-free under the unlimited marital deduction.
In order to make the most of your annual gift tax exclusion, remember that the exclusion is based on a calendar year. You cannot go back and claim a year you may have missed. However, you can spread a large gift over two or more years and still avoid gift tax complications. If you have a goal of gifting as much as possible without tax, you may write a check to to your beneficiary for $14,000 before December 31, 2015 (or $28,000 if you are married and splitting gifts with your spouse), and write a second check to the same beneficiary for $14,000 on January 1, 2016 (or $28,000 if you are married and splitting gifts with your spouse). That way, both gifts will be tax free and will not reduce your lifetime exclusion.
If you have any questions about gift taxes, estate taxes, or any other estate planning needs, please contact Anderson, Dorn & Rader, Ltd., either online or by calling us at (775) 823-9455.
Considering how to pass your wealth on to the next generation? Then the generation skipping tax is something with which you should be familiar. The generation skipping transfer tax is a tax assessed on property as it is passed on to a generation that is two or more levels below the generation actually transferring the property. Simply put, if you transfer your property to a grandchild, instead of your daughter or son, the transfer would be subject to the generation skipping tax. The same is true if you transfer your estate to someone who is unrelated, and who is 37 ½ years or more younger than you. This type of transfer would also be subject to the generation skipping transfer tax.
Government tax schemes do not take into consideration those of us who want to include our grandchildren in our estate planning. Instead, the government apparently believes a family’s wealth should only be allowed to trickle down from one generation to the next. However, some grandparents may choose to assist their grandchildren in paying for their education or getting on their feet with their new families. The purpose of the generation skipping tax was to close the obvious loophole in the estate tax, and ensure that taxes will be paid at each level.
In 2009, the federal government created an exemption for property transfers up to $3.5 million from the generation skipping transfer tax. The tax was actually repealed in 2010, but reinstated in 2011, with a $5 million exemption. Since then, the exemption has been increased from $5 million to the current exemption of $5.34 million, as of 2014.
Yes. There are specific estate planning tools designed to eliminate estate taxes at each generational level. A Generation Skipping Trust, also known as “dynasty trusts,” is a kind of irrevocable trust created to deal with this tax, especially.
A General Skipping Trust is intended to avoid, or at least minimize, estate taxes on transfer to subsequent generations. This trust accomplishes this by holding the assets in the trust and distributing the funds in a pre-defined way to each generation. This way, the entire amount of the trust will be protected from estate taxes with each passing generation. Because these trusts also provide protection from creditors and predators, Generation Skipping Trusts are not just for wealthy families.
Another option is gifting assets to your grandchildren. This can potentially reduce the size of your estate, as well as the tax that must be paid upon your death. A grandparent can give his or her grandchildren up to $14,000 per recipient per year without having to report the gift. This money can also be placed in a properly established and maintained gift trust. Although you can make an outright gift, pay health care or education expenses directly, or put the money in a custodial account, putting the money into a trust has some major advantages that you should discuss with your estate planning attorney.
Generation skipping trusts are complex legal documents that should be drafted by a competent, experienced Reno estate planning attorney. They are most knowledgeable about deciding whether a generation skipping trust in Reno would benefit you.
So, you just received a notice that you will inherit from your great aunt’s estate. A wonderful surprise, no doubt. Of course, an estate may be required to pay taxes to the government, but do heirs pay taxes on the inheritance they receive from someone’s estate? The answer depends entirely on which state you live in. Since state laws are always subject to change, you should check with competent counsel in your state if you are receiving an inheritance.
An “inheritance tax” is a tax imposed on money received from someone else’s estate after their death. Inheritance taxes apply a tax rate schedule to bequests made, depending on the class of beneficiary. For instance, surviving spouses and lineal heirs are generally taxed at a lower tax rate, or may be totally exempt from taxes. More distant or unrelated heirs, sometimes referred to as collateral heirs, will normally be taxed at a higher rate. The federal government does not have an inheritance tax. Inheritance taxes are only imposed at the state level. However, not all states impose an inheritance tax. In fact, only a few remaining states have continued to impose the tax.
The Estate Tax is a tax on the transfer of estate assets at your death. It is calculated by first making an accounting of everything you own or have some type of ownership interest in. The total value of all of these items is your "Gross Estate." Property that is generally included in your gross estate would be cash and securities, real estate, insurance, trusts, annuities, business interests and other assets. After certain deductions are allowed, to arrive at your "Taxable Estate," the tax is assessed on the net amount. The estate tax is imposed on the estate of the person leaving the property, not the beneficiary. Therefore, the key difference between an estate tax and an inheritance is who is responsible for paying the tax.
From 1924 through 2001, the federal estate tax allowed a dollar-for-dollar credit for state death taxes paid up to certain maximum limits. At that time, all states imposed estate taxes up to the amount of the federal credit. Some states also imposed additional inheritance or estate taxes. However, from 2001 to 2005, Congress phased out the federal credit for state death taxes. Once that happened, most states stopped imposing estate or inheritance taxes. Now, only seven states continue to impose inheritance taxes: Iowa, Kentucky, Maryland, Nebraska, New Jersey, Pennsylvania, and Tennessee. The Tennessee tax is scheduled to be eliminated after December 31, 2015. Nevada does not impose an inheritance tax.
Another common question is whether the recipient of a gift is required to pay taxes if it is not an inheritance, but the donor is still living. In most cases, the person making the gift is responsible for paying any required taxes, and reporting the gift to the IRS and to their state, if necessary. The person receiving the gift should not have any immediate tax consequences. Gifts generally are not included as part of the recipient’s taxable income. However, there may be future tax consequences, such as a capital gains tax when the gifted property is later sold.
If you have questions regarding inheritance taxes, or any other estate planning needs, please contact Anderson, Dorn & Rader, Ltd., either online or by calling us at (775) 823-9455.
You have to be concerned about taxation when you are planning your estate. Taxes on asset transfers at death are going to be a factor for many high net worth families. Nevada, however, has no inheritance or estate tax, so we only have to be concerned about the federal estate tax.
There is an estate tax credit or exclusion. In 2014 the amount of this exclusion in this country, including Reno Nevada, is $5.34 million. Lifetime asset transfers exceeding this amount are potentially subject to a transfer tax of 40 percent.
The question of whether or not an inheritance recipient will be required to pay taxes is a multifaceted one. If the assets that comprise the estate do not exceed $5.34 million in value, the estate as a whole will not be taxed. So the answer is no on this level, when the estate is worth less than $5.34 million.
If it was worth more, the individual beneficiaries do not pay the estate tax. The estate is responsible to pay the tax, so it comes out before other transfers, which means that the value of the estate as a whole would be reduced by the imposition of the tax.
Many laypeople would naturally think that an inheritance tax and an estate tax are exactly the same thing. They assume that these are just different terms that describe the same death tax.
In fact, an inheritance tax is something that is by definition different from an estate tax. As we have already touched upon, an estate tax is imposed on the entire estate. An inheritance tax is levied upon each person receiving an inheritance.
Fortunately, there is no inheritance tax in the United States on the federal level and as mentioned above, we do not have a state level inheritance tax in the state of Nevada. However, there are some states in the union that do have inheritance taxes. As we said, the beneficiaries of the estate typically pay an inheritance tax in those states. State level estate taxes are typically paid by the estate, similar to the federal estate tax.
In fact, residents of New Jersey and Maryland are faced with the prospect of paying a state level estate tax, a state level inheritance tax, and the federal estate tax.
It should be noted that states that have an inheritance tax generally exempt very close relatives like spouses and children.
You may wonder if you are going to be forced to report an inheritance on your annual tax return claiming it as income. If you receive a bequest, generally speaking it is not going to be looked upon as taxable income.
However, if the inheritance was to appreciate during the administration process before it was distributed, the gains could be taxable. Similarly, if income is generated during that time, it could be subject to income tax.
Of course, if you sell property that you inherited at a later date after it appreciated, the capital gains tax would be a factor, but the cost basis is stepped up to the value as of the date of the deceased owner's death, so the tax would only be for the appreciation after that date.
This post provided a little bit of information about estate planning and taxation in Reno Nevada. To learn all of the details, contact our firm to schedule a free tax efficiency consultation.
During 2010 the estate tax was temporarily repealed. This repeal was in place due to provisions that were included in the Bush era tax cuts.
Under the laws as they existed during 2010, the estate tax would return in 2011. The amount of the federal estate tax credit or exclusion would be just $1 million. The top rate for estates in excess of $1 million was scheduled to come in at 55 percent.
In 2009 the estate tax exclusion was $3.5 million, and the top rate was 45 percent. It seemed that come 2011, we would be facing a huge tax increase.
Fortunately, in December of 2010 a new tax relief measure was passed through Congress. This measure is called the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010.
Under terms contained within this act, the estate tax exclusion was set at $5 million for 2011 and 2012. Ongoing annual adjustments for inflation were mandated. A maximum rate of 40 percent was put into place. The law was scheduled to sunset at the end of 2012 again, but fortunately Congress made it permanent in 2013.
Incremental Increases
For 2012 the Internal Revenue Service raised the exact amount of the federal estate tax exclusion to $5.12 million to account for inflation. Another adjustment was applied in 2013, bringing the amount of the exclusion up to $5.25 million.
2013 is rapidly coming to a close, so the IRS has announced the amount of the estate tax exclusion for 2014. An additional $90,000 will be added to the existing $5.25 million exclusion. Next year the exclusion will be $5.34 million.
Exclusion Afforded to Each Taxpayer
It should be noted that this is a per person exclusion. Each individual taxpayer is entitled to an exclusion of $5.34 million. As a result, if you are married you and your spouse would have a combined exclusion amount of $10.68 million next year.
If you were to pass away next year, your spouse can take some legal steps that would still allow him or her to have a total exclusion of $10.68 million, because the estate tax exclusion is portable between spouses.
Annual Gift Tax Exclusion
In addition to the estate tax there is also a federal gift tax. The two taxes are unified. The $5.34 million exclusion that we will see next year will apply to transfers by gift during your life or by inheritance at death. Because it covers taxable gifts that you give while you're living along with the value of the assets that will be passed to your heirs after you die, the gifts you make that are in excess of the annual exemption will reduce the exemption amount at your death.
The annual gift tax exclusion is the amount you can give without filing a gift tax return or reducing your estate tax exclusion. You don't use up any of your unified lifetime exclusion unless you make a gift to a single person during a calendar year that exceeds the amount of this annual exclusion.
During 2013 the amount of this exclusion has been $14,000. Because of the fact that the Internal Revenue Service raised the lifetime unified exclusion, you may wonder if the annual gift tax exclusion was increased as well.
Unfortunately, the annual gift tax exclusion is not going to be raised for the 2014 calendar year. The $14,000 figure will remain in place next year. Remember, however, it is a per person exclusion, so you and your spouse can gift $14,000 each to your daughter and her husband, a total of $56,000 per year without filing a return or adversely affecting your lifetime exemption.
Wealth preservation involves the deployment of estate tax strategies. To determine whether or not your wealth is potentially subject to the estate tax before it is passed on to your heirs you should be aware of the federal estate tax exclusion.
For the rest of this year the estate tax exclusion is $5.25 million. The maximum rate of the federal estate tax is 40% under the provisions of the American Taxpayer Relief Act of 2012. (Ironically, prior to this "relief" the maximum rate was 35%.)
Under existing laws the estate tax exclusion can be adjusted annually for inflation if such an adjustment is warranted. As a result you may see a slightly different estate tax exclusion amount in 2014 and in subsequent years assuming existing laws remain in place.
In addition to the federal estate tax we have a federal gift tax. It carries the same top rate, and it is unified with the estate tax. As a result, the $5.25 million exclusion is a unified exclusion. It applies to taxable gifts and your estate's value. For this reason giving gifts using this exclusion throughout your life is going to reduce the estate tax exemption at death, so you have to determine which is the best approach for you.
The good news is that there is an annual per person gift tax exclusion that exists separate from the lifetime unified exclusion. The exact amount of this exclusion does not necessarily remain constant every year, but in 2013 the amount of this annual per person exclusion is $14,000.
As a result, if you wanted to write a $14,000 check and give it to your son this transaction would not be taxable, and your lifetime unified exclusion would not be reduced by the value of the gift.
This is an exclusion that is afforded to each taxpayer. So, a married couple could give as much as $28,000 to any number of gift recipients this year free of taxation. If you had several children, friends or others to whom you wish to make gifts, you could transfer quite a bit of money tax-free, and you could also give tax-free gifts to their spouses using this annual exclusion.
The estate tax exclusion is portable. This means that the surviving spouse could use the unused portion of the exclusion that his or her deceased spouse was entitled to.
When you're planning your estate you should be aware of the fact that there is an unlimited marital deduction. You can give your spouse any amount of money while you are living free of the gift tax. Your spouse can also inherit any amount of money from you without incurring any estate tax exposure.
The Sopranos television series obviously generated a lot of revenue, and as you might imagine "Tony Soprano" James Gandolfini left behind a considerable estate. At the time of his passing his net worth was estimated to be approximately $70 million.
The accumulation of wealth can result in a great deal of estate tax liability if you don't take the correct steps to position your assets with wealth preservation in mind.
Apparently the actor did not plan ahead very effectively. He did have an estate plan in place, but most of his wealth is being transferred under the terms of a last will. Simply creating a simple will to direct the transfer of assets is not going to do anything to provide you with estate tax efficiency.
On the federal level the estate tax carries a 40% maximum rate, and the current exclusion is $5.25 million. Gandolfini resided in New York, so his family faces yet another layer of taxation because there is a state-level inheritance tax in the state of New York.
The New York state inheritance tax exclusion is $1 million, and the maximum rate of the tax is 16%.
When you combine the rates on both the federal and the state level you are looking at total taxation that consumes more than half of the taxable portion of an individual's estate.
In the case of James Gandolfini it is estimated that his heirs will receive only $40 million out of the $70 million that he left behind after estate taxes have been paid. With proper planning, there is a good possibility that the entire estate tax liability could have been avoided. Unfortunately, most of us rationalize our procrastination until we have a "wake up call" such as a personal medical event or the death of a loved one. Gandolfini was not elderly and had little forewarning, so he likely thought he had time to consider his estate planning. Perhaps, his untimely death and the tremendous costs associated with it will be the wake-up call more of us need to meet with qualified counsel and complete our estate planning before the unfortunate event occurs.
