Resources

Despite the tax savings, you may be uneasy about making outright gifts to your children and grandchildren, due to the loss of control over when and how they use the gift. This concern can be addressed by making the gifts in trust, which will allow you to determine when they receive the money and how it is to be used. There are special requirements for ensuring that a gift in trust qualifies for the $14,000 annual exclusion. Usually, the trust agreement is drafted to provide the beneficiary with sufficient control over the gift that it is considered a “present” interest rather than a future interest. (This is called a “Crummey” Trust, named after the family that first successfully used this approach.) Although there is a risk of the beneficiary withdrawing the gift from the trust, the beneficiary should be dissuaded from doing so upon realizing that you will likely not make any further gifts to the trust. If you are interested in making a gift in trust, call us. We will be glad to explain how this is done and we have drafted many such Trust Agreements.

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You should review your charitable giving to ensure that it is being done in the most tax-efficient manner. Charitable giving is an important form of estate planning. Gifts to charity are not (and never have been) subject to estate or gift tax. If you are planning to make a large gift, we should review its impact on your over-all tax liability and whether it may make sense to defer all or a portion of the gift to future years. The IRS requires an appraisal of the fair market value of certain gifted assets. The IRS states that: “The donor may not be allowed to claim fair market value for the donated property if the contributed personal property is put to unrelated use by the charity, or has a claimed value of more than $5,000, and is sold, traded, or otherwise disposed of by the qualified organization during the year of the donation, and the organization has not made the required certification of exempt use as outlined on Form 8282, Part IV.” “Unrelated use” means “a use that is unrelated to the exempt purpose or function of the charitable organization. For example, if a painting contributed to an educational institution is used by that organization for educational purposes by being placed in its library for display and study by art students the use is related. But if the painting is sold and the proceeds from the sale of that painting are used by the organization for educational purposes, the use is […]

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The tax law was changed in 2015 to permanently allow tax free Charitable Gifts from an Individual Retirement Account (“IRA”) by those over age 70-1/2. The law allows an “exclusion from income” of up to $100,000 per person, per year, for distributions made directly to charities by taxpayers over age 70-1/2. This change ended the uncertainty confronting tax payers for many years caused by Congress failing to enact “tax extender” legislation until very late in the year. Basic Requirements A direct charitable contribution from your IRA is deemed to be part of your Required Minimum Distribution (“RMD”). You can contribute more than your RMD to charity up to $100,000 in any calendar year. The gift can satisfy a pledge that you have made. You cannot receive anything of value in exchange for your contribution. The charity must give you a receipt stating the amount of the charitable distribution and that no goods, services, or benefits of any kind were or will be provided to you in consideration for the distribution from the IRA. The contribution cannot go to a donor-advised fund, supporting organization or private foundation. Finally, you cannot make a qualifying charitable IRA distribution from a Simplified Employee Plan (“SEP”) or a Savings Incentive Match Plans for Employees (“SIMPLE” plan) if the employer contributed to such plan during the year of the proposed gift. Gifts of Appreciated Long-term Capital Gain Property You may wish to forego a direct IRA charitable contribution if you could save even more tax on […]

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The current federal gift and estate tax “exclusion amount” (exemption) is $5,490,000. The IRS recently announced that, effective as of January 1, 2018, this exclusion amount will be increased (inflation-adjusted) by $110,000 to $5,600,000. This favorable change in the Federal Estate and Gift Tax law may have an impact on your estate plan. Please contact us if you would like to discuss the impact of this increase of the exclusion amount on your estate plan.

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By: R. Leonard Davis, III, Esquire “Put not your trust in money, but put your money in trust.”  — Oliver Wendell Holmes Interest remains high in a very old, but until recently infrequently used, estate planning tool: The Living Trust.  In recent years, articles regarding the Living Trust have appeared in the Wall Street Journal and other financial publications. We will explain below what a Living Trust is and how it helps to avoid probate, enabling your family to save money, delay and red tape. What Is A Living Trust? How Does It Differ From A Will? A Revocable Living Trust is an extremely flexible estate planning tool.  In a sense, it is a Will substitute, in that it can do everything that a Will can do.  However, it can do much more than a Will.  A Will contains a person’s written instructions for transferring that person’s assets to his or her heirs at their death.  A Trust contains the same type of instructions.  A Will names an executor to distribute those assets.  A Trust names a trustee to do the same thing.  But the similarities end there. A trust is a separate legal entity which is created by an agreement among three parties: the Settlor, who creates the Trust and funds it; the Trustee, who manages and controls the Trust and distributes its assets; and the Beneficiary, who is entitled to benefit from the Trust.  A Living Trust’s flexibility stems from the fact that the same person or persons […]

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What Is Estate Planning? What on earth is estate planning? Many people don’t have a clue. Estate planning sounds like a rich person’s concern. However, estate planning is not only for the rich. It is also important for people with limited assets. Everyone has an Estate, and Everyone Should Make Plans to Protect It. So, what is estate planning? Everyone no matter how rich or poor has an estate. Your estate is made up of all the things you own. Your house, car, financial accounts, insurance accounts, jewelry, furniture, clothes, and pets are all part of your estate. Estate planning assumes that (at some point) you will no longer be able to make decisions about your things or how you will provide for the people you love.  So, estate planning allows you to decide in advance what you will give away, who will get your things, when they will get your them, and even what they have to do in order to get them. Estate planning also lets you plan how you and your loved ones will be protected when you become incapacitated. You can decide what end of life care you will receive, you can plan who will get your money, and you can protect your family from future creditors and unwise spending. A Simple Example: How Estate Planning Can Help Rufus. Let’s consider a simple example of estate planning. Imagine you have a beloved golden retriever named Rufus. What would happen to Rufus if something happened to you? […]

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The primary techniques to reduce or eliminate federal estate taxes in 2017 are as follows: 1. The Unlimited Marital Deduction. This technique avoids any federal estate tax on a transfer of property between spouses; however, the effect is often to merely postpone the tax to the death of the second spouse. 2. Credit Shelter Trust. By use of this technique, both spouses can fully utilize each of their $5,459,000 estate tax exclusion amounts (i.e., each can use their unified credit) and thus spouses can pass up to a combined total of $10,998,000 federal estate tax free. A less effective way to utilize both spouses’ unified credits is through a “portability” election at the death of the first spouse. 3. Lifetime Exclusion Giving. Every person is entitled to gift up to $14,000 per donee, to an unlimited number of donees, during any calendar year, without such gifts being subject to federal gift or estate tax, without the requirement to file a gift tax return, and without impacting a person’s lifetime unified credit amount. Through a technique known as “gift splitting,” married couples can give up to $28,000 of jointly held property per donee per year. Gifts can be made in cash, or through other creative techniques, such as gifting shares in a Family Partnership set up for that purpose. (The $14,000 gift exclusion amount applies in 2017 and will be adjusted in future years to take inflation into account.) 4. Charitable Gifts. You get a deduction for federal estate tax purposes […]

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A very effective tool for dealing with the federal estate tax is the Irrevocable Life Insurance Trust. This type of Trust is fundamentally different from a Revocable Living Trust. Because it is irrevocable, an Irrevocable Life Insurance Trust cannot be changed or revoked even while you are living. However, as a result, any assets transferred by you to the Irrevocable Trust are effectively removed from your taxable Estate. An Irrevocable Life Insurance Trust is usually funded with a single asset. Often that asset is a “permanent” (whole life or universal life) life insurance policy, where the premiums are paid over a period of 7-15 years. Upon your death, the insurance proceeds are exempt from federal estate tax because the proceeds are not included in your taxable estate. However, the Trust will permit the proceeds to be used to pay the federal estate tax liability incurred by your estate. EXAMPLE: John and Sara’s estate has grown to $12,000,000. They can effectively shield and transfer up to $11,000,000 (in 2017) of that estate to their children by utilizing a Credit Shelter Trust. However, $1,000,000 of their estate will still “exposed” to federal estate tax, and will suffer a federal estate tax liability of approximately $400,000. John and Sara set up a joint Irrevocable Life Insurance Trust, specifying that the trustee will buy a $500,000 policy on the joint lives of John and Sara. (Joint life policies tend to be considerably less expensive than a life insurance policy insuring the life of one […]

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Most estates are exempt from federal estate tax and are not required to file a Federal Estate Tax Return on Form 706 or pay any Federal Estate Tax. The current (2017) exemption amount is an inflation-adjusted 5,490,000. A married couple can shield up to double that amount (i.e., $10,980,000) in transfers by careful planning.  The Republican Congress has introduced bills to repeal the Federal Estate Tax (House: H.R. 631, 115th Cong., 1st Sess. (Jan. 24, 2017); Senate: S. 205, 115th Cong., 1st Sess. (Jan. 24, 2017)), but there is no assurance that such repeal legislation will ever become law.  The federal estate tax is the “grand-daddy” of all taxes, as the applicable current tax rate starts at 40%.  At Drake, Hileman & Davis we work hard to reduce or eliminate the federal estate tax burden of our clients through careful lifetime estate planning strategies (such as use of credit shelter trusts, marital deduction trusts and so-called “portability” elections) as well as post-mortem (after death) tax planning (such as by use of qualified disclaimers). If a federal estate tax return is required, we have a very knowledgeable team ready and able to correctly and efficiently prepare and file your federal estate tax return. Call us if you have a large estate or if you have questions about Federal Estate Taxes. We can help you quickly determine if the estate is subject to federal estate taxes. We can help find ways to reduce or eliminate federal estate taxes. We can help you prepare […]

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