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Update 2019 | Federal Estate Tax Exemption Amount

October 27, 2018
Federal Tax Exclusion 2018

In 2019 the federal Estate Tax Exemption is 11.4 million for an individual or 22.8 million for a married couple.

So how does this effect you? 
Put simply, this will only effect you if the total value of your estate exceeds the estate tax exemption amount. The vast majority of estates do not approach this level, so estate tax planning does not have to be a concern for most people. Which is nice, because now much more focus in estate planning can be on other issues, such as asset protection, income tax, and taking care of your family, over having to plan around the estate tax, which in its day was quite onerous.
What if your estate is over the estate tax exemption amount?

Then we should talk about an estate tax plan. If your estate is over the estate tax exemption amount, then your estate will be required to pay a marginal estate tax rate of 40%. This can be avoided through advanced estate planning and protection planning. Sometimes just an irrevocable life insurance trust is enough to adequately deal with estate tax concerns.

The new 2019 Estate Tax Rate will be effective for the estates of decedents who passed away after December 31, 2018.

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Filed under: Estate Administration, Estate Planning, Legal Posts

Posted By: Christopher Miller

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Year 2016 Estate and Gift Tax Exemption Amounts Announced By the IRS

December 23, 2015

Since it is the giving season, let’s talk estate and gift taxes! The IRS recently announced the new estate and annual gift tax exclusion amounts for 2016. In 2016 the estate tax exclusion amount will be increased to $5.45 million per individual estate, which means a married couple can shield up to $10.9 million from estate taxes. The annual gift tax exclusion amount remains at $14,000.00 per donor per individual recipient.

These amounts had originally been set at $5 million and $13,000.00 respectively, by The Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 enacted on December 17, 2010, since indexed to inflation by the American Taxpayer Relief Act of 2012 enacted on January 2, 2012.

If you anticipate that your estate (including life insurance, retirement benefits, and inheritances you might receive from others) may be above $5.45 million individually, or above $10.9 million as a married couple, you should consider a thorough estate planning review. There are often ways to help reduce or even eliminate estate and gift tax liability through careful estate planning.

You can see the IRS announcement here.

Filed under: Estate Administration, Estate Planning, Legal Posts

Posted By: Christopher Miller

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SC Estate Attorney A – Z: Marital Deduction

May 5, 2013

Next up in South Carolina Estate Lawyer A to Z, is the marital estate tax deduction. This is a deduction against the estate tax, and it results in significant tax savings when utilized correctly.

The marital deduction was first introduced in 1948 with the passage of a fifty percent marital deduction applicable to non-community property. In 1977, the marital deduction was changed to be the greater of $250,000.00 or fifty percent of the decedent’s estate, still applicable only to non-community property. In the Economic Recovery Tax Act (there seems to be a lot of these Recovery Acts doesn’t there?) of 1981, the marital deduction became unlimited and it was applied equally to separate and community property. This is where we stand at present with the marital deduction.

There are seven major requirements in order for a transfer to a spouse to qualify for the marital deduction. They are set forth in IRC Section 2056 and are:

  • 1. The decedent must have been legally married at the time of death.
  • 2. The person to whom the decedent was legal married must survive the decedent.
  • 3. The surviving spouse must be a US citizen (or the property is held in a QDOT trust).
  • 4. The interest passing to the surviving spouse is includible in the decedent’s gross estate
  • 5. The interest must pass to the surviving spouse.
  • 6. The interest received by the surviving spouse must be a deductible interest.
  • 7. The value of the interest passing to the surviving spouse must be at its net value.

The fifth requirement is one of the more interesting, as it leads to the question of what qualifies as an interest that passes to the surviving spouse. Certainly, property acquired by will, intestacy, elective share, power of appointment, or beneficiary designation qualifies as passing to the surviving spouse. But what about transfers in trust where the surviving spouse only has an interest for life? Do these qualify for the marital deduction as property passing to a surviving spouse?

The rule has existed that terminable interests in property do not qualify for the marital deduction. The reasoning behind this is that while the government is willing to defer the estate taxes owed when the first spouse passes away, the government wants some assurance that it will eventually be paid when the surviving spouse passes away (the marital deduction can be seen more as a delay in the payment of estate taxes rather than a full avoidance of the tax). Property given to the spouse that is a terminable interest would circumvent this principle. Some examples of terminable interests are run-of-the-mill life estates and interests in trusts that fail to meet certain requirements.

What are the certain requirements that could result in a marital deduction being available for a terminable trust interest? Well that would be the QTIP trust (Qualified Terminable Interest Trust), and I will talk about that some more when I get to the letter Q.

Filed under: Estate Planning, Legal Posts

Posted By: Christopher Miller

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South Carolina Estate Lawyer A to Z: Gift Tax Exemption and Exclusion

October 25, 2011

Installment G of A to Z is Gift Tax Exemption and Exclusion. The federal government imposes a gift tax on gifts. (Most states, including South Carolina, do not impose a gift tax.) The maker of the gift is generally liable for the tax on the gift. However, all of us are permitted to make a certain amount of gifts without incurring any tax.

The gift tax exemption is the amount of gifts that people can make during their lifetime without having to pay gift tax upon their deaths. This is the lifetime gift tax exemption amount and it currently stands at five million dollars. (The gift tax exemption is unified with the estate tax exemption, so any amount of gifts that reduces your gift tax exemption reduces your estate tax exemption dollar for dollar.)

For example, if you were to make taxable gifts totaling four million dollars during your lifetime, and upon your death you leave a taxable estate worth three million dollars, the four million dollars in gifts will reduce your unified gift tax/estate tax exemption by four million dollars. How much exemption you have left depends on the exemption amount in the year in which you die. This is what is meant by the unified gift tax/estate tax: Taxable gifts made during your lifetime can decrease the amount of estate tax exemption available to your estate after your death.

The other gift tax concept is the gift tax annual exclusion. The gift tax annual exclusion amount currently stands at $13,000.00 per year per person receiving a gift (in 2018 the amount is $15,000.00). This means that you may gift up to $13,000.00 per person per year without reducing your gift tax lifetime exemption amount. Spouses have the option to elect to double the amount of gift they can make to any one person during the year without reducing their lifetime exemption amount, this is called “gift splitting.” Spouses can do this even if the source of the gifts is with one spouse only. This election is made on the gift tax return.

Speaking of gift tax returns, when is one required to be filed? A gift tax return must be filed with the IRS when any person makes a gift to any other one person in a given year in an amount greater than $13,000.00 (or $26,000.00 if spouses elect gift splitting.) Also, a gift tax return must be filed whenever spouses elect gift splitting for a gift made. The gift tax return is generally due by April 15 of the year following the year of the gift. If the gift maker has died before the return is filed, his or her Personal Representative must file the return, and a Personal Representative is permitted to elect gift splitting for gifts made prior to the gift maker’s death.

Unless you give away an amount greater than your gift tax lifetime exemption amount, no gift tax must be paid when the gift tax return is filed. The tax is instead determined after death through the concept of the unified gift tax/estate tax exemption, as described above, ie, the gift made during lifetime reduces the gift tax/estate tax exemption after death.

So there you have a brief primer on the gift tax exclusion and exemption amounts and their interplay with the estate tax regime.

I need to add a disclaimer here: unfortunately, it is impossible to offer comprehensive legal advice over the internet, no matter how well researched or written. And remember, reviewing this website and my blogs doesn’t make you a client of my Firm: before relying on any information given on this site, please contact a legal professional to discuss your particular situation.

Oh, and the IRS would like me to let you know that any U.S. federal tax advice contained in this document is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code, or (ii) promoting, marketing, or recommending to another party any transaction or matter that is contained in this document.

Filed under: Estate Administration, Estate Planning, Legal Posts

Posted By: Christopher Miller

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