Posts filed under Estates & Trusts

Annual Gifts Can Reduce Your Tax Liabilities

Federal and state taxes may apply to gifts from your estate. Giving gifts is one way to offset or reduce annual income tax liabilities and reduce the size of your estate that may be subject to taxation upon death.

The Fed and 2 States Claim Taxes for Estates and Gifts

Currently two states, Minnesota and Connecticut have state level assessments for gift tax in addition to federal tax rates. For lifetime gifts of $1,000,000 or more a rate of 10% is assessed.  There is also an estate tax at death for $1,000,000+ estates of 16-41%.  The federal gift and estate tax exemption is currently set at $5.25 million.  So even if your estate is exempt from federal taxes your estate may be subject to state taxes. Minnesota has calculator available on the Department of Revenue website. 

Plan and Reduce Your Liabilities

One way to reduce your annual tax burden is give annual gifts.  The current level of tax exclusion is $14,000 per person, per year.  A married couple could give $28,000 per person, per year.

You may not owe taxes for assets left to spouses and it's possible that expense reductions could bring your estate under the limits established. It is always prudent to get advice specific to your situation and holdings. 

Interested in reading about actual cases and their tax outcomes?  Tax Adviser has an interesting blog on a couple of cases that are eye opening.

There was also the well publicized case of the actor, James Gandolfini's death this summer and the possible mismanagement of his estate tax planning.  Here is a link if you missed the story. 
Take action and get your affairs in order - it could save you and your heirs lots of money and difficulties down the road. Bulger CPA has a passion for the Estates and Trust area - let's have a discussion to protect your hard earnings.

Posted on January 14, 2014 and filed under Estates & Trusts, Personal Finance.

What does the DOMA ruling mean for tax payers?

Last month in United States v. Windsor, the Supreme Court ruled that Section 3 of the Defense of Marriage Act (DOMA) was unconstitutional under the Due Process Clause of the Fifth Amendment. 

The 5–4 decision is regarded as a landmark case for marriage equality and civil rights under law. By deeming DOMA unconstitutional, the court has returned marriage rights to the states. If a same-sex couple legally marries in one of the thirteen states or five Native American jurisdictions where same-sex marriage is legal, the federal government recognizes the marriage and extends all the rights, privileges and benefits of marriage to the couple.

The tax implications of the DOMA ruling at the federal level are considerable. At the heart of the Windsor case was the estate tax exemption of surviving spouses, otherwise known as the inheritance tax. Because Edith Windsor’s marriage to Thea Spyer was recognized by the state of New York, Windsor applied for the surviving spouse federal exemptions that allow spouses to inherit assets and property from one another tax-free. The exemption can be applied throughout their lives and at the time of one spouse’s death. Because Section 3 of DOMA defined marriage as a union only between a man and woman, Windsor was denied the exemption and faced a $363,053 estate tax on the home she and Spyer shared. 

In addition to the rights of survivorship enjoyed by opposite-sex couples through the institution of marriage, same-sex couples may now be eligible for over 1,000 benefits at the federal level that were often denied to them under section 3 of DOMA. Same-sex married couples will now be allowed to file joint tax returns. Their status as lawfully married will also affect, immigration issues, social security tax rates, capital gains and losses, child care tax credits, elderly and disabled credits. Same-sex married couples may also be able to amend tax returns filed previously to reflect their new legal status. The statute for limitations on filing amendments to a tax return is usually three years.

The tax implications of the DOMA ruling are vast and in many instances will benefit same-sex couples that marry legally. However, same-sex couples that marry will find out what opposite-sex married couples have known for years. Namely, that the federal government penalizes married couples by creating tax thresholds that are significantly lower than that of two single earners. If the couple’s combined income exceeds the threshold they will be taxed at a higher rate than two single earners would on the same amount of income or dividends. This part of the tax code is known as the “Marriage Penalty”. 

Most same-sex couples, like their opposite-sex counterparts, probably won’t let a higher tax rate stop them from entering into marriage. In today’s society, romantic love has superseded the old ideas of marriage as a contract based on security or social status. While security and status in society still play a role, it is love that drives most people to the alter. However, once couples marry professional tax advice and financial family planning becomes even more vital to creating and maintaining a healthy financial future.

Tom Bulger, CPA specializes in estate tax law, and helping families achieve their financial goals. Give Tom a call today.

Are you engaged to be married, or a newlywed wondering about the tax implications of marriage? Post your questions below.

Check back for our next post on "Perceived Indifference" and the effect it has on retaining your business' customer base.

Posted on July 21, 2013 and filed under Estates & Trusts, Filing Taxes, Personal Finance.

Estate Planning and Tax Updates for 2013

Estate tax law has always been complicated and rife with annual changes keeping taxpayers and preparers scrambling to keep up. This has been particularly true in the last few years with the uncertainty of tax cut renewals or repeals and possible changes in estate and gift exclusion rates. Congress eliminated the sunset provision of the 2012 American Taxpayer Relief Act (A.T.R.A.) removing lingering ambiguity; however, there are still many changes to the tax code regarding estate taxes that should be considered when planning your financial future and that of your heirs.

Increased Maximum Tax Rates and Permanent Exemption Amounts

The total amount of taxable gifts (i.e. gifts that do not qualify for the annual exclusion ($14,000 in 2013) or the unlimited educational gift tax exclusions or medical expenses) that individuals make for the duration of their life without paying a Federal Gift Tax is known as the Federal Gift Tax exemption.

Property transferred at death excluding transfers to charities and surviving spouses that exceeds the unused portion of the decedent's lifetime exemption amount is subject to Federal Estate Tax. Therefore, the Federal Estate Tax exemption amount available at death is reduced by lifetime taxable gifts. Deciding on the amount of lifetime gift exemptions one uses before transferring an estate VS. at the time of estate transfer, is a perfect example of why choosing a highly qualified and thoughtful Estate Tax and Gift planning professional is so vital.

The U.S. generation-skipping transfer tax (GST) levies a tax on transfers in trust and outright gifts to related beneficiaries who are more than one generation removed from the donor, like grandchildren. It also applies to unrelated beneficiaries that are more than 37.5 years younger than the donor. However, for the GST to be applied the transfer must have avoided assessment of estate or gift tax at each generation level.

The Federal Estate Tax exemption amount and the Federal Gift Tax exemption amount of $5,000,000, are permanently unified by A.T.R.A. 2012, and are indexed for inflation. Federal GST tax exemption is now permanently set at an equal amount to the Federal Gift Tax exemption and the Federal Estate Tax exemption. Exemption amounts for 2013 are forecasted to be $5,250,000 according to the latest inflation data with a unified credit amount of $2,045,800.

The A.T.R.A. of 2012 establishes a 5% increase from 35% to 40% to the maximum tax rate for lifetime gifts and transfers and for decedents passing on or after January 1, 2013 when the Estate is in excess of the exemption amount. 

Permanent Portability of Unused Exemption Between Spouses

A.T.R.A. of 2012 permanently allows a Personal Representative of a deceased spouse's Estate to choose to allow their surviving spouse to use the unused exclusion amount (DSUE) of the deceased spouse's that remains at death, known as "portability". This allows the surviving spouse to use the DSUE amount against any tax liability from subsequent transfers at death or lifetime gifts. To take advantage of the portability an Estate tax and GST form 706 tax return must be filed for the deceased spouse's Estate.

How the Act Affects You

The 2012 A.T.R.A. changes include the largest permanent exemption threshold in U.S. transfer tax history against GST, Estate and Gift tax liability. With the increased exemption amounts, low interest rates, the continued viability of Grantor Trusts, Grantor Retained Annuity Trusts and valuation discount planning, it is a great time to contact Tom Bulger, CPA, who is an expert in estate tax and planning to explore the various and significant opportunities currently available with regard to the transfer of wealth. Now is the time to make sure your Estate and Gifting plans are still effective at reducing your estate's tax burden and are appropriate for you and your beneficiaries. 

What do you think of the changes to the American Taxpayer Relief Act? Leave a comment below and share your thoughts.

Check back for our next post on retention periods for Tax records and other financial documents, and some tips for best practices in keeping your vital information organized, accessible and secure.

Posted on March 6, 2013 and filed under Estates & Trusts.