How to Plan and Settle Estates by Edmund Fleming

Author:Edmund Fleming
Language: eng
Format: mobi
ISBN: 9781621533993
Publisher: Skyhorse Publishing, Inc.
Published: 2014-01-01T05:00:00+00:00

CHAPTER 9

Federal Estate Tax Planning

Federal estate and gift taxation is a highly complex subject that takes years of study to understand and requires continuing education to stay current with the law. This chapter is a very brief outline of selected topics. The estate tax is based on the transfer of a person’s property and is generally paid within nine months after the date of death. The estate tax should not be confused with income taxes, which are assessed on a person’s income each year. The crucial question to remember is: did the person own or control the property on the date of his death? A person is considered an owner if the property is titled in his name; if he has a power of appointment over the property not subject to a contingency; if he makes gifts of property for the three years prior to his death; if he is the beneficiary of a living trust; if he has control over life-insurance policies; if he has a possibility of a reversionary interest; and other items. Remember that living trusts have no benefit for reducing estate taxes, since, by definition, a person controls property held in his living trust.

The Federal United States Estate (and Generation-Skipping Transfer) Tax Return, Form 706, must be filed for the estate of every US citizen or resident if the fair market value of the gross estate on the date of death exceeds $5,250,000 (2013 amount), if the executor elects to transfer the unused exemption amount to the spouse, or the decedent made taxable gifts after 1976 not included in the gross estate. The return must be filed nine months after the date of death unless there are reasonable causes for a delay in filing. A six-month extension may be granted for filing the return but not for paying the tax. There are limited exceptions for paying the tax in installments.

If your gross estate is less than the applicable threshold amount at death, you will owe no estate taxes, provided you haven’t used up your unified credit (exclusion amount) in prior years by taxable gifts. There are numerous techniques available, which can reduce or freeze the size of your estate to help avoid or minimize the tax. Consult with a tax advisor as early as possible if you believe your estate may end up paying estate taxes.

When your gross estate is near the threshold amount, you may consider a program of gifting up to $14,000 ($28,000 between yourself and your spouse, if you are married) in property to each of your beneficiaries each year. This amount is indexed to inflation and is subject to increase in future years. If these same distributions are deferred until after your death, your beneficiaries may receive only sixty cents on the dollar due to taxes.

Some gifting techniques, such as transfers to a charitable remainder trust, also provide for a current income tax deduction.

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