Trusts

2017 Estate and Gift Tax Update – A Quick Snapshot

Every year I like to post a quick Estate and Gift Tax update for you to reference throughout the year. This way, if you’re anything like me, you won’t find yourself constantly “Googling” different estate and gift tax thresholds at the beginning of the year for a quick refresher on the updated thresholds. The purpose of this post is to provide a snapshot of some of the most common 2017 estate and gift tax thresholds, tax rates, exemptions, elections, etc. Feel free to use this how you see fit. Additionally, if you have any other commonly used 2017 estate and/or gift tax updates that I may have left off the list, please feel free to leave them in the comments.

Federal Gift Tax

  • Lifetime Exemption: $5,490,000
  • Annual Exclusion: $14,000
  • Gift-Splitting: Yes, if married and spouse consents (i.e., annual exclusion is $28,000 for married couples)
  • Rate: 40% on gifts above the lifetime exemption (plus the annual exclusion)

Federal Generation-Skipping Transfer Tax

  • Exemption: $5,490,000
  • Portability: No
  • Rate: 40% on generation-skipping transfers above the exemption

Federal Estate Tax

  • Exemption: $5,490,000 (exemption is decreased by lifetime gifts)
  • Portability: Yes (i.e., surviving spouse may elect to use deceased spouse’s unused exemption, in effect, giving married couples an exemption of $10,980,000)
  • Rate: 40% on the value of the estate above the exemption amount

Federal Income Tax for Trusts and Estates

  • Tax Brackets: see chart below
  • Tax Rates: see chart below
  • Net Investment Income Tax: A 3.8% surcharge tax on net investment income applies to trusts and estates that are above the $12,500 income threshold (i.e., the marginal tax rate on net investment income above that threshold is then 43.4%)
  • Distributable Net Income: Net income that is distributed to beneficiaries of a trust or estate is taxed at the beneficiaries’ level and not at the trust or estate’s level
Chart: Federal Income Taxation of Trusts and Estates
If Taxable Income is: The Tax is:
Not over $2,550 15% of the taxable income
Over $2,550 but not over $6,000 $382.50 plus 25% of the excess over $2,550
Over $6,000 but not over $9,150 $1,245.00 plus 28% of the excess over $6,000
Over $9,150 but not over $12,500 $2,127.00 plus 33% of the excess over $9,150
Over $12,500 $3,232.50 plus 39.6% of the excess over $12,500


State Taxes

Each State has its own set of rules when it comes to estate tax, gift tax, inheritance tax, and income taxation of trusts and estates. Be sure to check with a professional in your State for an update.

For a complete summary of all 2017 Federal tax-related inflation adjustments see Rev. Proc. 2016-55, available here: https://www.irs.gov/pub/irs-drop/rp-16-55.pdf.

I hope this helps!

-Matt

 

© 2016 Matthew D. Brehmer and Crummey Estate Plan.

2016 Estate and Gift Tax Update – A Quick Snapshot

Last year it dawned on me that a lot of us out there, including myself, find ourselves constantly “Googleing” different estate and gift tax thresholds throughout the beginning of the year for a quick refresher on the updated thresholds. The purpose of this post is to provide a snapshot of some of the most common 2016 estate and gift tax thresholds, tax rates, exemptions, elections, etc. Feel free to use this how you see fit. Additionally, if you have any other commonly used 2016 estate and/or gift tax updates that I may have left off the list, please feel free to leave them in the comments.

Federal Gift Tax

  • Lifetime Exemption: $5,450,000
  • Annual Exclusion: $14,000
  • Gift-Splitting: Yes, if married and spouse consents (i.e., annual exclusion is $28,000 for married couples)
  • Rate: 40% on gifts above the lifetime exemption (plus the annual exclusion)

Federal Generation-Skipping Transfer Tax

  • Exemption: $5,450,000
  • Portability: No
  • Rate: 40% on generation-skipping transfers above the exemption

Federal Estate Tax

  • Exemption: $5,450,000 (exemption is decreased by lifetime gifts)
  • Portability: Yes (i.e., surviving spouse may elect to use deceased spouse’s unused exemption, in effect, giving married couples an exemption of $10,900,000)
  • Rate: 40% on the value of the estate above the exemption amount

Federal Income Tax for Trusts and Estates

  • Tax Brackets: see chart below
  • Tax Rates: see chart below
  • Net Investment Income Tax: A 3.8% surcharge tax on net investment income applies to trusts and estates that are above the $12,300 income threshold (i.e., the marginal tax rate on net investment income above that threshold is then 43.4%)
  • Distributable Net Income: Net income that is distributed to beneficiaries of a trust or estate is taxed at the beneficiaries’ level and not at the trust or estate’s level
Chart: Federal Income Taxation of Trusts and Estates
If Taxable Income is: The Tax is:
Not over $2,550 15% of the taxable income
Over $2,550 but not over $5,950 $382.50 plus 25% of the excess over $2,550
Over $5,950 but not over $9,050 $1,232.50 plus 28% of the excess over $5,950
Over $9,050 but not over $12,400 $2,100.50 plus 33% of the excess over $9,050
Over $12,400 $3,206 plus 39.6% of the excess over $12,400

State Taxes

Each State has its own set of rules when it comes to estate tax, gift tax, inheritance tax, and income taxation of trusts and estates. Be sure to check with a professional in your State for an update.

For a complete summary of all 2016 Federal tax-related inflation adjustments see Rev. Proc. 2015-53, available here: https://www.irs.gov/pub/irs-drop/rp-15-53.pdf.

I hope this helps!

-Matt

 

© 2015 Matthew D. Brehmer and Crummey Estate Plan.

The Foundation – Part 2: Probate Avoidance

Continuing with Part 2 of this three part series, I am going to briefly cover some of the most popular probate avoidance strategies. As a refresher, the purpose of this series is to cover the fundamentals and foundation of estate planning and some of what I typically go through with a client during an initial estate planning consultation, including the following topics:

Part 1 – Last Wills & Testaments and Powers of Attorney
Part 2 – Basic Probate Avoidance Strategies
Part 3 – Joint Revocable Living Trusts

For purposes of this post, it is extremely important to remember that if any of the following probate avoidance measures are used with respect to any of your assets, the distribution of those assets upon your death will NO LONGER be controlled by your Last Will & Testament. The designation or form you used to avoid probate will now control the distribution of that asset upon your death. This is one of many reasons why it is important to talk to an experienced professional when drafting your estate plan; the experienced professional can work with you to ensure that your entire estate plan (i.e., your Will, your beneficiary designations, etc.) works together to achieve your desired goals and results.

Example: The “Average” Estate

A significant portion of most individuals’ estates are made up of the following assets: a house, bank accounts, retirement/brokerage accounts, life insurance, an automobile and tangible personal property (e.g., your household furnishings, antiques, collectibles, etc.). By implementing a few of the probate avoidance strategies below, most individuals will have the peace of mind in knowing that a significant portion of their estate, if not all of it, will avoid probate.

And, even if not all of the assets avoid probate (e.g., like the car and the tangible personal property), if those remaining probate assets are below a certain threshold amount, your State may still provide a way to transfer those assets without the need for probate after your death (e.g., in Wisconsin, if you probate assets are under $50,000, they can be transferred by affidavit and probate can be avoided). This should be a goal for almost all estate plans – to at least have the value of your probate assets below the probate threshold amount in your State.

Joint Ownership

Generally, any assets held and titled as joint ownership property pass to the survivor of the joint owners outside of probate. Common assets that can be held jointly include bank accounts and real estate. However, keep in mind that the asset will pass fully to the survivor, even if you wish it to go to someone else.

Beneficiary Designations

Any assets where you can and do designate a beneficiary will pass to the beneficiary outside of probate. Common assets where beneficiary designations are used include retirement accounts (e.g., pension plans, 401(k)s, IRAs), life insurance policies and brokerage accounts. If you wish to designate a beneficiary to any of these types of accounts, you can do so by requesting a beneficiary change form from your account administrator.

Payable on Death Accounts

Similar to beneficiary designations, payable on death accounts allow you to designate a beneficiary of that particular account. If such a beneficiary is designated, that account will pass to the beneficiary outside of probate upon your death. Payable on death accounts are particularly useful when it comes to your bank accounts. Most banks (if not all) will allow you to name a beneficiary to your bank account, you just need to speak to your banker.

Transfer on Death Designations

Again, similar to beneficiary designations, transfer on death designations are used to pass interests in property upon your death to a named beneficiary without the need for probate. The most common use of transfer on death designations are for real estate and business interests. This type of probate avoidance strategy will usually involve seeing an attorney to draft the transfer on death designation.

Marital Property Agreements (with Washington Will provisions)

For married couples in some States, marital property agreements with Washington Will provisions can be used to pass all of the decedent spouse’s property to the surviving spouse upon the death of the first spouse without the need for probate. If otherwise consistent with your estate plan, this can make the time and expenses involved at the first spouse’s death much easier to cope with. However, only some States allow for this type of probate avoidance strategy. This will also require you to see an attorney to draft the agreement.

Trusts

Any assets held in trust will also pass to (or be held for) the beneficiary of the trust without the need for probate. Generally, almost any asset can be held in trust; thus, this can provide a lot of flexibility and the most overall probate avoidance. Additionally, this will also require an attorney to draft the trust agreement. In Part 3 of this series I will focus solely on trusts so be sure to check that out once I post it.

Recap: The “Average” Estate

Above I stated that a significant portion of most individuals’ estates are made up of the following assets: a house, bank accounts, retirement/brokerage accounts, life insurance, an automobile and tangible personal property. The following is a recap of the probate avoidance strategies that can be used to pass those assets to your heirs without the need for probate:

  • House – joint ownership, transfer on death designations, and trusts.
  • Bank accounts – joint ownership, payable on death accounts, and trusts.
  • Retirement/brokerage accounts – joint ownership, beneficiary designations, and trusts.
  • Life insurance – beneficiary designations and trusts.
  • Automobile and tangible personal property – joint ownership and trusts.

Conclusion

As you can see, there are multiple ways to avoid probate in regards to a particular asset and among your entire estate. The strategy and combination of strategies chosen will be different for every individual; some strategies may provide more advantages than other strategies depending on your individual circumstances. Additionally, many of the above probate avoidance strategies can be achieved for relatively little cost and time while saving your estate and your heirs A LOT of time and expense after you pass.

However, like I stated in Part 1, any plan starts with a good and solid foundation, and that includes your estate plan. That means that even if you engage in the above probate avoidance strategies, you still need to have a Last Will & Testament to “catch” those assets that you may have missed or that could have fallen outside the probate avoidance measures you took. Probate avoidance strategies must be integrated into an already existing solid estate plan; otherwise, the benefits and advantages such strategies provide will be diminished.

Make sure to check out Part 3 (Trusts) of this series when I post it. And, lastly, like with any topic I blog about, I am only scratching the surface of these topics, you must contact a professional in order to fully consider how these estate planning strategies will play out in your individual circumstances.

I hope this helps!

-Matt

 

© 2015 Matthew D. Brehmer and Crummey Estate Plan.

Charitable Remainder Trusts – Lifetime income for you, tax control now, and a gift to charity at the end

Recently, Appleton Group LLC partnered with our Firm, Remley & Sensenbrenner, to produce a brief informational video on a powerful estate planning tool called a Charitable Remainder Trust (CRT). A CRT can help you accomplish three goals: provide lifetime income for you and your family, control taxes now and fund your favorite charities at the end of the trust. Check out the video below…

2015 Estate and Gift Tax Update – A Quick Snapshot

It recently dawned on me that a lot of us out there, including myself, find ourselves constantly “Googleing” different estate and gift tax thresholds throughout the beginning of the year for a quick refresher on the updated thresholds. The purpose of this post is to provide a snapshot of some of the most common 2015 estate and gift tax thresholds, tax rates, exemptions, elections, etc. Feel free to use this how you see fit. Additionally, if you have any other commonly used 2015 estate and/or gift tax updates that I may have left off the list, feel free to leave them in the comments.

Federal Gift Tax

  • Lifetime Exemption: $5,430,000
  • Annual Exclusion: $14,000
  • Gift-Splitting: Yes, if married and spouse consents (i.e., annual exclusion is $28,000 for married couples)
  • Rate: 40% on gifts above the lifetime exemption (plus the annual exclusion)

Federal Generation-Skipping Transfer Tax

  • Exemption: $5,430,000
  • Portability: No
  • Rate: 40% on generation-skipping transfers above the exemption

Federal Estate Tax

  • Exemption: $5,430,000 (exemption is decreased by lifetime gifts)
  • Portability: Yes (i.e., surviving spouse may elect to use deceased spouse’s unused exemption, in effect, giving married couples an exemption of $10,860,000)
  • Rate: 40% on the value of the estate above the exemption amount

Federal Income Tax for Trusts and Estates

  • Tax Brackets: see chart below
  • Tax Rates: see chart below
  • Net Investment Income Tax: A 3.8% surcharge tax on net investment income applies to trusts and estates that are above the $12,300 income threshold (i.e., the marginal tax rate on net investment income above that threshold is then 43.4%)
  • Distributable Net Income: Net income that is distributed to beneficiaries of a trust or estate is taxed at the beneficiaries’ level and not at the trust or estate’s level

Chart: Federal Income Taxation of Trusts and Estates

If Taxable Income is: The Tax is:
Not over $2,500 15% of the taxable income
Over $2,500 but not over $5,900 $375 plus 25% of the excess over $2,500
Over $5,900 but not over $9,050 $1,225 plus 28% of the excess over $5,900
Over $9,050 but not over $12,300 $2,107 plus 33% of the excess over $9,050
Over $12,300 $3,179.50 plus 39.6% of the excess over $12,300

State Taxes

Each State has its own set of rules when it comes to estate tax, gift tax, inheritance tax, and income taxation of trusts and estates. Be sure to check with a professional in your State for an update.

For a complete summary of all 2015 Federal tax-related inflation adjustments see Rev. Proc. 2014-61, available here: http://www.irs.gov/pub/irs-drop/rp-14-61.pdf

I hope this helps!

-Matt

© 2015 Matthew D. Brehmer and Crummey Estate Plan.