Share

Tax Planning

Wednesday, November 1, 2017

A Primer on Irrevocable Trusts


A Will is one way to plan for the distribution of your assets after death, however, a comprehensive estate plan also considers other objectives such as planning for asset protection and long-term care. Therefore, you should consider utilizing an irrevocable trust.


Read more . . .


Monday, July 3, 2017

Issues to Consider When Gifting to Grandchildren


Issues to Consider When Gifting to Grandchildren

Grandparents, Aunts, Uncles, or others who want to give gifts to their grandchildren, nieces, nephews, etc. may not be aware of a few issues related to what many consider to be a simple gift. If you are considering making a significant gift to a child, you should consult with a qualified attorney to guide you through the legal and tax issues that are involved.

Making a Lifetime Gift or a Bequest:  Before making a gift, you should consider whether you want to make the gift during your lifetime or leave the gift in your Will. If you make the gift as a bequest in your Will, they will receive the gift upon your death.


Read more . . .


Tuesday, June 17, 2014

Paying for Your Grandchildren’s Education

The bond between a grandparent and grandchild is a very special one based on respect, trust and unconditional love. When preparing one’s estate plan, it’s not at all uncommon to find grandparents who want to leave much or all of their fortune to their grandchildren. With college tuition costs on the rise, many seniors are looking to ways to help their grandchildren with these costs long before they pass away. Fortunately, there are ways to “gift” an education with minimal consequences for your estate and your loved ones.

The options for your financial support of your heirs’ education may vary depending upon the age of the grandchild and how close they are to actually entering college. If your grandchild is still quite young, one of the best methods to save for college may be to make a gift into a 529 college savings plan. This type of plan was approved by the IRS in Section 529 of the Internal Revenue Code. It functions much like an IRA in that the appreciation of the investments grows tax deferred within the 529 account. In fact, it is likely to be "tax free" if the money is eventually used to pay for the college expenses. Another possible bonus is that you may get a tax deduction or tax credit on your state income tax return for making such an investment. You should consult your own tax advisor and your state's rules and restrictions.

If your granddaughter or grandson is already in college, the best way to cover their expenses would be to make a payment directly to the college or university that your grandchild attends. Such a "gift" would not be subject to the annual gift tax exemption limits (currently $14,000) which would otherwise apply if you gave the money directly to the grandchild. Thus, as long as the gift is for education expenses such as tuition, and if the payment is made directly to the college or university, the annual gift tax limits will not apply.

As with all financial gifts, it’s important to consult with your estate planning attorney who can help you look at the big picture and identify strategies which will best serve your loved ones now and well into the future.

 


Tuesday, March 18, 2014

Can I Get In Trouble With the IRS for Trying to Reduce the Amount of Estate Tax That I Owe?

You’ve likely heard that one of the many benefits of estate planning is reducing the amount of federal and state taxes owed upon your passing. While it may seem like estate tax planning must run afoul of IRS rules, with the proper strategies, this is far from the case.

It is very common for an individual to take steps to try to reduce the amount of federal estate taxes that his or her "estate" will be responsible for after the person's death. As you may know, you may pass an unlimited amount of assets to your spouse without incurring any federal estate taxes. In 2014, you may pass $5.34 million to non-spouse beneficiaries without incurring federal estate tax and if your spouse died before you, and if you have taken certain steps to add your spouse's $5.34 million exemption (or whatever it was at time of death) to your own, you may have $10.68 million that you can pass tax free to non-spouse beneficiaries.

If your estate is still larger than these exemption amounts you should seek a qualified estate planning attorney. There may be other legal, legitimate planning techniques that will help reduce the taxable value of your estate in order to pass more assets to your loved ones upon your death and lessen the impact of the estate taxes. After your death, the duty normally falls on your executor (or perhaps a successor trustee) to file the appropriate tax returns and pay the necessary taxes. Failure to properly plan for potential estate taxes will significantly limit what your executor/trustee will be able to accomplish after your passing.

 


Monday, December 23, 2013

Protecting Your Legacy with Estate Tax Planning

You spend your whole life building your legacy but sadly, that is not always enough. Without careful estate tax planning, much of it could be lost to taxes or misdirected. While a will or living trust is essential for dividing your estate as you wish, an estate tax plan ensures you pass on as much of your legacy as possible.

Understanding estate tax laws

For the past decade, estate tax laws have been a sort of political football game with significant changes occurring every few years. The good news is that the 2013 tax act made the basic $5 million estate tax exemption “permanent,” but at a higher rate of 40%, though the law continues to upwardly adjust the exemption level for inflation. With this adjustment, the 2013 exclusion is $5.25 million per person ($10.5 million per married couple). The law also retained exclusion “portability” which means that if one spouse dies in 2013 or after, the surviving spouse may pass on the unused portion of the deceased spouse’s exclusion. This portability is not automatic, however. The unused portion needs to be transferred to the surviving spouse, and a special tax return (estate tax return) must be filed within nine months of the death of the first spouse. The surviving spouse does not have to pay estate taxes at this time, they only become due, (if at all), after both spouses have died.

Optimizing your estate plan

One way to maximize the amount you can pass on is through annual gifting while you are alive. For 2013, an individual is allowed to give $14,000 to another individual, tax-free. If you give more than that, it will reduce your basic lifetime exclusion. So, if you give a child $50,000 this year, your basic $5.25 million exclusion will be reduced by $36,000 at the time of your death. You can gift as much as your full $5.25 million exclusion before incurring taxes, although doing so would “exhaust” your estate tax exemption at death. Gift tax rates were raised to 40% in 2013 and are paid by the giver, not the recipient.

An experienced estate tax planning attorney can help minimize potential gift and estate taxes by:

  • Identifying taxable assets
  • Transforming your wishes into a will or living trust
  • Keeping you apprised of federal and state tax law changes
  • Establishing an annual gifting plan
  • Creating family and charitable trusts
  • Setting up IRA charitable rollovers
  • Setting up 529 education savings plans
  • Helping you create a succession plan for your family business

It’s never pleasant to consider the end of your life, but planning for it will help ensure that the things you care about are cared for. It is one of the greatest gifts you can give your loved ones.


Friday, June 21, 2013

What is Estate Tax Portability and How Does it Affect Me?

At the end of 2012, the entire country watched as major changes were made to income tax  laws with the adoption of the American Taxpayer Relief Act of 2012 (ATRA). The act also made significant changes in estate tax laws.

Estate Tax Portability

One important change is that the estate tax portability law is now permanent.  Estate tax portability means that the unused portion of the first-to-die spouse’s estate tax exemption passes to the surviving spouse.  The current 2013 estate tax exemption is $5.25 million ($5 million with adjustments for inflation).  This means that a married couple’s total estate tax exemption is currently $10.5 million.  For example, a husband dies with $2 million in separate assets.  He has $3.25 million remaining in his estate tax exemption, which passes to his wife, giving her a total of $7.5 million in estate tax exemption.  Without portability, the husband’s remaining exemption might have been forfeited if the couple had not implemented special tax planning techniques as part of their estate plans.

How Do You Claim the Portability?

This is where married couples and estate executors can get into trouble.  The estate tax portability rule is not automatic.  In order to claim the remainder of the first-to-die spouse’s estate tax exemption, the surviving spouse or the deceased spouse’s estate executor must file an estate tax return soon after the death, usually within nine months.

If this filing deadline is missed, then the couple will not get the benefit of estate tax portability.  Missing the estate tax filing deadline can result in the possibility of hundreds of thousands of unnecessary and avoidable estate taxes.

In a recent report in The Wall Street Journal, estate planning experts expressed concern that executors of small estates may be unaware of the estate tax return filing requirement and may believe that an estate tax return is unnecessary if the deceased spouse’s assets fall under the $5.25 million exemption amount. To preserve portability, however, the estate tax return must be filed after the first spouse’s death.  

Alternatively, married couples can utilize a special trust, referred to as a “credit shelter trust” or “bypass trust” to prevent forfeiture of their individual exemptions.  This planning technique must be undertaken when both spouses are still alive, and if this strategy is implemented, the preservation of the deceased spouse’s exemption is accomplished and an estate tax return may not be necessary at all.

The Consequences of Failing to File an Estate Tax Return

As a simple example, consider a husband and wife who have a total of $7.5 million in assets, $6 million of husband’s assets (separate and community) and the remaining $1.5 million owned by the wife (her share of the community).  Upon the wife’s death, the estate’s executor files a timely estate tax return and the wife’s remaining $3.75 million in estate tax exemptions pass to the husband.  The husband then has a total of $9 million in exemptions. When the husband dies, his entire $6 million passes to his heirs tax free, even though his personal estate tax exemption is only $5.25 million (in 2013).  If portability is not claimed, then $750,000 of the husband’s assets will be taxed (the current rate is 40 percent).  The husband’s heirs would be required to pay approximately $300,000 in estate taxes which could have been avoided if the wife’s estate executor had filed an estate tax return within the time limit.

Even if both spouses together have assets under the current $5.25 million exemption, it is still a good idea to file an estate tax return after the death of the first spouse.  Filing the estate tax return and preserving the portability benefit protects the surviving spouse’s heirs in the event the surviving spouse receives a windfall during his or her lifetime that raises his or her assets above the $5.25 million exemption level.
 


Monday, January 21, 2013

2013 Changes to Federal Estate Tax Laws

Changes to income taxes grabbed the lion’s share of the attention as the President and Congress squabbled over how to halt the country’s journey towards the “fiscal cliff.”  However, negotiations over exemptions and tax rates for estate taxes, gift taxes and generation-skipping taxes also occurred on Capitol Hill, albeit with less fanfare.

The primary fear was that Congress would fail to act and the estate tax exemption would revert back down to $1 million.  This did not happen.  The ultimate legislation that was enacted, American Taxpayer Relief Act of 2012, maintains the $5 million exemption for estate taxes, gift taxes and generation-skipping taxes.  The actual amount of the exemption in 2013 is $5.25 million, due to adjustments for inflation.

The other fear was that the top estate tax rate would revert to 55 percent from the 2012 rate of 35 percent.  The top tax rate did rise, but only 5 percent from 35 percent to 40 percent.

The American Taxpayer Relief Act of 2012 also makes permanent the portability provision of estate tax law.  Portability means that the unused portion of the first-to-die spouse’s estate tax exemption passes to the surviving spouse to be used in addition to the surviving spouse’s individual $5.25 million exemption.

Some Definitions and Additional Explanations

The federal estate tax is imposed when assets are transferred from a deceased individual to surviving heirs.  The federal estate tax does not apply to estates valued at less than $5.25 million.  It also does not apply to after-death transfers to a surviving spouse, as well as in a few other situations.  Many states also impose a separate estate tax, but Texas does not.

The federal gift tax applies to any transfers of property from one individual to another for no return or for a return less than the full value of the property. The federal gift tax applies whether or not the giver intends the transfer to be a gift.  In 2013, the lifetime exemption amount is $5.25 million at a rate of 40 percent.  Gifts for tuition and for qualified medical expenses are exempt from the federal gift tax as are gifts under $14,000 per recipient per year.

The federal generation-skipping tax (GST) was created to ensure that multi-generational gifts and bequests do not escape federal taxation.  There are both direct and indirect generation-skipping transfers to which the GST may apply.  An example of a direct transfer is a grandmother bequeathing money to her granddaughter.  An example of an indirect transfer is a mother bequeathing a life estate for a house to her daughter, requiring that upon her death the house is to be transferred to the granddaughter.


Wednesday, November 21, 2012

Annual Year End Gifts

If you’re like most people, you want to make sure you and your loved ones pay the least amount of tax possible. Many use simple year-end gift giving as a way to transfer wealth to younger generations and also reduce the overall potential estate tax that will be due upon their death. Below are some steps you can take to make small gifts, within the exemption amount, to your heirs without triggering any gift tax liability. Some of these techniques may also reduce your own income tax liability.

A combination of estate and gift tax exemptions can be used to significantly reduce the overall tax liability of your estate. Upon your death, federal estate tax may be owed. A portion of your estate is exempt from the tax. That exemption amount is set by Congress and can change from year to year. For deaths that occur in 2011 the exemption amount is $5 million and for deaths that occur in 2012 the exemption amount is indexed at $5.12 million, and the value of an estate in excess of the respective amount is subject to estate tax.

Many taxpayers make annual gifts to loved ones during their lifetimes, to reduce the overall value of the estate so that it does not exceed the exemption amount in effect at the time of death. It is important to consider that gifts made during your lifetime are subject to a gift tax (equal to the estate tax). However, certain gifts or transfers are not subject to the gift tax, enabling you to make tax-free gifts that benefit your loved ones and reduce the overall taxable value of your estate upon your death.

The annual gift tax exclusion allows each individual to make annual gifts of up to $13,000 to each recipient without even having to file a gift tax return. There is no limit to the number of recipients who may each receive up to $13,000 totally tax-free. Married couples may gift up to $26,000 to each recipient without triggering any tax liability. This annual exclusion expires on December 31 of each year, and larger gifts may be made by splitting it up into two payments. By making a payment in December and one the following January, you can take advantage of the gift tax exclusion for both years. Keeping annual gifts below $13,000 per recipient ensures that no gift tax return must be filed, and that there is no reduction in the estate tax exemption amount available upon your death.

Annual gifts may also be made in the form of contributions to a §529 College Savings Plan. These, too, are subject to the $13,000 annual gift tax exclusion. Additionally, such contributions may afford the giver with a state tax deduction.

Payment of a beneficiary’s medical expenses is also excluded from the gift tax. There is no limit to the amount of medical expense payments that may be excluded from tax. To qualify, the payment must be made directly to the health care provider and must be the type of expenses that would qualify for an income tax deduction.

If you have a large estate that may be subject to taxes upon your death, making annual gifts during your lifetime can be a simple way to reduce the size of your estate while avoiding negative tax consequences.


Friday, September 9, 2011

Executors of 2010 Estates Have Until Nov. 15 to Make Estate Tax Decisions

Everyone will remember the “wonderful boon” that was the 2010 estate tax repeal, which (in theory) allowed decedents to pass on their assets free of any estate taxes.  However, the situation was complicated in December of 2010 when, as this article in Bloomberg puts it, “Congress extended the tax retroactively [giving] executors of estates of people who died that year a choice. They could decide to skip the estate tax or pay the tax with a $5 million per-person exemption and a 35 percent top rate, the same as in 2011.”

Executors have had almost a year to consider their options, but now it is just about time to make the decision, because “the Internal Revenue Service is giving executors of estates of people who died in 2010 until Nov. 15 to opt out of the estate tax.” According to the IRS the forms and instructions for 2010 estate tax returns will be made available early this fall.

But executors don’t have to wait until the forms are available to consider which tax option might be the most profitable one. Many financial planners and estate planning attorneys have already done their research, and they’ve found that opting not to pay estate taxes may end up costing you more in the long run. This article in Forbes explains: “Opting out of the estate tax regime means opting out of stepped-up basis (for income tax purposes)… and opting into the modified carryover basis rule…  One of the main plusses about estate tax is that it is paired with a stepped-up income tax basis.  You should not be paying both estate tax and income tax on the same assets.”

Of course, each estate will be different depending on a number of factors, including the size of the estate, the nature of the assets, the preferences of the beneficiaries, and any previous planning the decedent may have done. Executors should consider their options carefully, and consult with an experienced estate planning attorney and CPA before deciding whether opting out of the estate tax is really in their best interest.


Wednesday, February 23, 2011

The Tax-Man Cometh

It’s that time of year again; the time of year when everyone starts gathering receipts, assessing income and expenses, and making appointments with tax advisors.  Tax time can be a very stressful time for many families, but—with the help of this article from MSN Money—perhaps tax season can be made a little bit easier. The article lists 13 tax breaks from 2010 that can help save you money, including:

  • The tax credit for first time homebuyers (if you’re not a first time homebuyer don’t give up, there’s a credit for existing homeowners too.)
  • The parking and transit credit
  • The college tuition tax credit
  • The credit for energy-saving home improvements

And then of course there are the two we’ve been mentioning here on our blog for the past few months:

  • The estate tax exemption, and
  • The annual gift tax exemption

Of course, not every item on the list is going to apply to every reader, but if even one or two credits apply to you or your family it can be a huge help. 

Don’t rely only on this article to ease your 2010 tax burden, your own advisors and tax planners—who know more about your family’s personal and business finances—will be able to give you much more in-depth advice on how best to address your own tax situation.  In addition, talking to a professional advisor right now provides the perfect opportunity to tackle any issues in 2011, hopefully making this time next year a much happier and less stressful time for everybody.


Monday, December 20, 2010

At Long Last: What to Expect from Estate Taxes in 2011

It has been a long and uncertain year for anybody interested in the future of the estate tax, filled with a few ups, a few downs, and a lot of speculation.  But after the recent passage of the new bipartisan tax bill all of the confusion and speculation is finally at an end, and it’s very close to what we anticipated early last week.  The bill is good news for most taxpayers; the Wall Street Journal says there are “many winners, a few losers,” and according to the New York Times “Almost no one will have to worry about paying the estate tax under the tax legislation just approved by Congress.”

Here is a brief overview of what you can expect in 2011:

New Estate Tax Exemptions and Rates:The new bill sets the estate tax exemption at $5 million per individual ($10 million per married couple), with amounts over the exemption taxed at a 35% rate.  This is opposed to the $3.5 million exemption and 45% rate some lawmakers were hoping for.

Tax Election Option for 2010 Estates:As mentioned in a previous post, this is one of the biggest parts of the new bill. There may have been no estate tax in 2010, but there was also no “step up in basis,” meaning that heirs selling inherited assets were taxed based on the original acquisition cost of the assets, not on their value as of the date of the taxpayer’s death, as is usually the case.  This led to a higher tax paid on the assets if and when they were sold, in spite of the lack of estate tax. Tax election gives 2010 estates the choice of whether to use 2010 or 2011 tax rules—a happy option for 2010 heirs.

Estate, Gift, and Generation-Skipping Taxes: In recent years these three levies have had varying exemption levels, making gift giving and succession planning and challenging exercise at best. The unification of all three makes tax planning and giving gifts to grandchildren much easier than it used to be.

Individual Income and Payroll Taxes: The new bill wasn’t just about estate taxes; it also extends the Bush-era income tax rates; this is good news as it prevents a rise for nearly all taxpayers.

How Long Will It Last? We’re all glad that the waiting is over and we finally know what to expect, but the new law is only effective through 2012, at which point the provisions will “sunset.” This new tax package sets our minds at ease now, but the estate tax issue is far from over.  It looks as if we may have to revisit the issue in 2012-2013.

With the threat of high estate taxes out of the way does any reason remain to create (or update) your estate plan? Absolutely!

Estate planning is about more than just planning for taxes, it’s about taking control of your assets and choosing how your estate will be distributed.  Divorce, second marriages, planning for college, charitable gifts—these are just a few of the reasons why estate planning is essential regardless of the state of the estate tax.

At the very least, the recent fluctuation of the law means that you’ll want to call our office and make an appointment to have your existing plan reviewed and updated to ensure you don’t have any outdated clauses that could negatively affect your heirs.


Archived Posts

2017
2016
2015
2014
2013

← Newer12 Older →


Schnurr Law Firm, PLLC serves clients throughout the greater Houston area, including, but not limited to Houston, Bellaire, West University, Sugar Land, Missouri City, Richmond, Rosenberg, Katy, Cypress, The Woodlands, Kingwood, League City, Webster, Clear Lake, Pearland, Angleton, and throughout Harris County, Fort Bend County, Montgomery County, Brazoria County and Galveston County.



© 2017 Schnurr Law Firm, PLLC | Disclaimer
1111 North Loop West, Suite 1115, Houston, TX 77008
| Phone: 713-662-2889

Estate Planning | Family Limited Partnerships | Qualified Personal Residence Trust (QPRT) | Irrevocable Life Insurance Trust (ILIT) | Advanced Estate Planning | Probate / Estate Administration | Special Needs Planning | Elder Law | Pet Trusts | Business Law-Entity Formation | Uncontested Divorces | Mediation | Planning for Same Sex Partners & Unmarried Couples | Resources

Lawyer Website Design by
Zola Creative