If you regularly make annual gift tax exclusion gifts to family members, or think you may want to start, consider leveraging your gifting with an irrevocable trust.  Call the Atlanta law firm of Hindson & Melton LLC for more information about annual gifting, irrevocable trusts, and other estate planning ideas to benefit your family.  And have a great 2018!

© Karen S. Hindson, Hindson & Melton LLC

In 2017, the basic exclusion amount was $5.49 million, but the Tax Cuts and Jobs Act of 2017  doubled the exclusion amount for years 2018 through 2025.  As of now, the 2017 provisions end in 2025 and the exclusion amount will go back to the old amount.  The 2017 tax law made portability permanent,  meaning a spouse can make use of the unused portion of the deceased spouse’s estate tax exclusion.  The 2017 tax law also made the basic exclusion amount permanent.

Keeping track of estate tax law changes can be important to your family’s financial future.  Atlanta law firm Hindson & Melton LLC can assist you with estate planning tailored for your family’s needs and goals.  Call us to discuss your family’s situation.

© Karen S. Hindson, Hindson & Melton LLC

Additionally, you can make unlimited payments directly to some educational and medical providers on behalf of someone else.  Of course there are regulations – for example, qualified education expenses are limited to tuition and you cannot pay for books or room and board as a qualified education expense.

The 2016 total exemption applying to estate tax and lifetime gifting is $5,450,000; for 2017 it will increase to $5,490,000.  If you make a gift to any individual that exceeds the annual gifting exclusion amount ($14,000), that will reduce your lifetime (including estate tax) gift amount.  At death, any unused exemption can be transferred to a surviving spouse but this requires a timely filing with the IRS.

If you have an estate that is potentially subject to estate tax, we can assist you with strategies designed to minimize your taxable estate and transfer wealth to the next generation.  This includes holding life insurance outside of your estate using an irrevocable life insurance trust, or using tax savvy trusts such as grantor retained annuity trusts (GRAT) to help keep the taxable value of your lifetime gifting low.  Contact us for more information about estate tax savings or gifting strategies that are right for you.

Karen Hindson, Hindson & Melton LLC

ALSO SEE

• Estate Planning Tips
• Estate Tax Portability
• Estate Tax and IRAs

The IRS has opened a temporary window to apply for retroactive estate tax portability of the unused exemption amount for decedents who died in 2011, 2012, or 2013.  IRS Revenue Procedure 2014-18 issued in late January provides a window for the remainder of 2014 during which a surviving spouse can file an estate tax return for a decedent who died in those years and retroactively qualify for portability. 

The advantage of estate tax portability is that the surviving spouse can claim the deceased spouse’s unused exemption amount (DSUEA).  This greatly reduces the likelihood of future estate tax liability for most couples and provides a financial and tax planning opportunity.  The Form 706 estate tax return must be filed in 2014 to qualify for the retroactive portability window.

For 2011, estates exceeding $5 million were taxed at 35 percent.  In 2012 the estate tax exemption was inflation-adjusted to $5.12 million.  For 2013 and 2014, the exemption amounts are $5.25 million and $5.34 million, respectively.  The tax rate has now increased from 35 percent to 40 percent. 

When unused exemption amount (DSUEA) portability was first enacted in 2010 as part of the first fiscal cliff legislation, it was temporary.   Many missed the deadline for filing for portability, or decided that the expense of filing an estate tax return wasn’t worth it for a temporary law.  The American Taxpayer Relief Act of 2012 made portability permanent, however, and portability is now an important estate planning tool for many families.  Rev Proc 2014-18 allows surviving spouses a second chance to file the Form 706 and claim DSUEA.

Estate tax returns normally must be filed within 9 months of death, with a possibility of a 6-month extension.  A Form 706 must be filed to elect portability, even if there is not an estate tax liability or other reason to file the return.  During the 2014 window, estates can claim an extension for filing an estate tax return beyond the normal filing period for decedents who died in 2011, 2012, or 2013.

The Revenue Procedure allowing a late extension to file only applies to those estates where there was not otherwise a requirement to file an estate tax return (in other words, estates under the estate tax exemption amount).   The decedent must have been married and a U.S. citizen or resident at the time of death.

Who should take advantage of this 2014 window of opportunity?  Any widow or widower whose spouse passed away during 2011, 2012, or 2013, should at least consider filing an estate tax return and claiming DSUEA.  The only reason not to file is if the net worth is so low that the surviving spouse is unconcerned about potential future federal estate tax liability, or believes that the risk of estate tax liability is so low that portability is not worth the expense of filing the estate tax return.

Surviving spouses with assets currently under the estate tax threshold should consider their life expectancy and the possibility of future growth of their assets.

If you, or someone you know, can benefit from the significant planning opportunity presented by Rev Proc 2014-18, do not delay.  Contact your estate planning attorney or CPA now to discuss or take advantage of the 2014 window.

© Karen S. Hindson, Hindson & Melton LLC  February 13, 2014

ALSO SEE:

• ANNUAL EXCLUSION GIFTS TO MINORS
• ESTATE TAXES AND IRAS
• LIFE INSURANCE TRUSTS

Deathbed conversions are not the typical Roth scenario. A Roth IRA achieves the most benefit if it’s owner (or the surviving spouse named as designated beneficiary) lives for many years following the creation of the account.

Whether or not you have concerns about estate taxes and IRAs, a Roth IRA allows you to build wealth that you can pass to beneficiaries. By contrast, traditional IRA owners must take required minimum distributions (RMDs), which cut into the tax-deferred growth of the account.

If you have traditional IRAs with assets that you are likely never to need during your lifetime, you should evaluate (with the advice of a qualified financial advisor) whether it might be advantageous to convert some or all of your IRA to a Roth IRA. Since 2010, there are no income limits for conversions to a Roth IRA.

If you name your spouse as beneficiary of your Roth IRA, your spouse can roll the IRA over into his or her own Roth IRA. A spouse beneficiary is not required to take distributions during his or her lifetime. This makes continuing growth possible. The surviving spouse can name children or grandchildren as beneficiaries, further leveraging the benefits of the account.

You might consider a Roth IRA conversion in a year when you have low taxable income due to job loss, business losses, or recent retirement. Consider Social Security benefits in the year of the conversion rollover. The income from the rollover could increase the amount of Social Security benefits subject to tax or trigger taxation of Social Security benefits by increasing the AGI to the taxable threshold.

While there are no income limits for conversions to a Roth, there still are income limits for making contributions to Roth IRAs. In 2014 the AGI phase-out range for Roth IRAs is $114,000 to $129,000 for singles and heads of household, and $181,000 to $191,000 for married couples. (Married couples earning more than $191,000 cannot contribute to a Roth IRA for 2014; between $181k and $191k the allowable amount decreases). However, investors who earn more than these income limits sometimes use what is known as a “backdoor” strategy by contributing to a traditional non-deductible IRA and then immediately converting to a Roth. Be sure to talk to your advisor about the pro rata rule before pulling the trigger on a conversion.

While you must have “earned income” to contribute to a Roth IRA, you can contribute at any age and there are no mandatory distributions. A non-working spouse can contribute based on the working spouse’s income. It is also possible to contribute and convert in the same year.

One other idea is to fund a Roth IRA for a minor grandchild who has earned income from a part-time job. The annual contribution would be limited to the lesser of the child’s earned income or the $5,500 maximum contribution.

Your IRAs, tax planning, and beneficiary designations are part of your overall estate plan. Consult your estate planning attorney and financial advisor to maximize the effectiveness of your plan and benefit for your family.

© Karen S. Hindson, Hindson & Melton LLC   February 12, 2014

ALSO SEE:

• ESTATE TAX AND INCOME TAX BASIS OF GIFTS
• REVOCABLE TRUSTS AND TAXES
• SECOND MARRIAGE ESTATE PLANNING TIPS

Trustees of revocable trusts are required to file annual income tax returns; but if the grantor or the grantor’s spouse is a trustee, the income and deductions are reported on the grantor’s personal tax return instead of a trust tax return.  So, the trust uses the grantor’s social security number instead of obtaining a separate tax ID number.

During the grantor’s lifetime, there are no significant income tax consequences of the revocable trust.   The grantor trust rules result in the grantor being taxed on the trust income whether or not the income is distributed from the trust.   Similarly, transferring your property to your revocable trust won’t typically be considered a taxable event which would trigger tax due on gain.  If you transfer your principal residence to your revocable trust, you would still be entitled to tax advantages available upon sale of your principal residence.

Transferring property to your revocable trust does not have immediate gift tax consequences, but a gift is made if the trust property is then distributed to someone else.  Property transferred to a revocable trust is included in the grantor’s gross estate for estate tax purposes.

If you transfer your residence to a revocable trust, it should not affect your eligibility for Georgia homestead exemption.

There are often non-tax considerations involved in creating revocable trusts.  A revocable trust can offer some creditor protection, especially for claims that arise after transfer of the property to the trust.  Additionally, the trust vehicle offers greater privacy than probate and is less vulnerable to attacks based on undue influence or mental incapacity.  Finally, the revocable trust can provide for management of your assets in the event of your incapacity.

© Karen S. Hindson, Hindson & Melton LLC   October 26, 2013

• The exclusion amount of $5 million continues in effect but is inflation-adjusted; for 2012 the exclusion amount was $5.12 million and for 2013 it increases to $5.25 million.  If ATRA had not passed, the estate tax exclusion amount for 2013 would have dropped to $1 million, with no inflation adjustment.
• Portability has been enacted as a permanent feature of federal estate tax law.  Portability allows a surviving spouse to utilize the unused portion of the first spouse to die’s gift and estate tax exclusion amount.
• Portability is an election that requires filing a Form 706 estate tax return, even if the estate and gifts of the first spouse are less than the exclusion amount.   As a result, the surviving spouse must weigh the expense and complexity of filing the estate tax return against the likelihood that the second spouse to die will need the unused portion of the first spouse’s gift and estate tax exclusion amount.
• Portability is not indexed for inflation after the year of death.
• The estate tax return must be filed within 9 months after date of death so the portability election is time-sensitive.  It is possible to request a 6 month extension.
• For 2013 and future years, the top tax rate for federal estate, gift and generation-skipping transfer tax increases to 40 percent.   Absent ATRA, the estate tax rate for 2013 would have jumped to 55 percent with no portability feature.
• Some couples think that portability will fully address their estate tax planning concerns.  However, portability does not offer any creditor protection, and the surviving spouse might select beneficiaries that the first spouse did not intend after the death of the first spouse.  Traditional estate planning tools such as credit shelter trusts continue to offer safeguards that are desirable to some clients.
• State estate tax and inheritance tax laws vary widely and must be considered in estate planning.  As states seek additional revenues, expect creativity on this front.  A limited number  of states currently give domestic partners tax parity with surviving spouses.
• The annual gift tax exclusion amount has been $13,000; for 2013 it increases to $14,000 per donee ($28,000 if gift-splitting).

While the rules and the tools change from year to year, the fundamental importance of estate planning has not changed.  Work with a qualified estate planning attorney to clarify your estate planning objectives and implement a plan appropriate to your family and assets.  Hindson & Melton LLC serves clients in Georgia and South Carolina, including Atlanta, Dunwoody, Sandy Springs, Roswell, Charleston, and surrounding communities.

© Karen S. Hindson, Hindson & Melton LLC, March 23, 2013

Annual gifting of a limited amount is still possible without using any of the lifetime gift tax exclusion amount.  That amount remains $13,000  per gift recipient.  Husbands and wives may combine their gifts and give a combined total of $26,000 to each recipient.  For 2012, there is a lifetime gift tax exemption amount of $5,120,000 million.  (It was $1 million in 2010).

If you are considering giving away appreciated assets now while you are still alive because the exemption is at $5 million, consider that under the 2011 and 2012 law, at your death, your assets are “stepped up” to their current market value.  This means your heirs can sell the assets inherited at your death without owing capital gains income tax.  So perhaps you don’t want to give away appreciated assets now that you might hold until your death.

Estate planning is a constantly changing area of the law.  If you have concerns about estate planning, or estate tax savings, contact Charleston and Atlanta estate planning attorney Karen Hindson for assistance.