Thursday, 27 April 2017 01:52

Trump's 2017 Tax Plan

Trump’s 2017 Tax Plan

 

On Wednesday, April 26, 2017 President Trump presented a proposal to overhaul the Tax Code.  The proposal was very brief – just one page.  Of the seven items, I wish to discuss only two because they most influence Estate Planning, and those are the proposed changes to Capital Gains, and the Federal Estate Tax.

 

Proposed Changes to Capital Gains:

Proposed to be reduced from 23.8% to 20%

 

 

Proposed Changes to the Federal Estate Tax:

 

Complete elimination of the Federal Estate Tax.  It is indexed for inflation, and as of 2017 it is:

Individual – $5.49 million, and for married couples it is $10.98 million (double what it is for a single person)

 

 

What are Capital Gains?

 

When you buy something and it goes up in value by the time you sell it, you’ve realized a Capital Gain, and you are supposed to pay taxes on that gain.  Many people think this only applies to rich investor types, but in-fact, it applies to a single silver coin, your Samsung TV, or whatever!

The 3.8% reduction represents the 3.8% surtax that was added by President Obama during his administration to help fund Obama Care (or the Affordable Care Act).

 

 

What is the Federal Estate Tax (or sometimes “Federal Estate Tax Exclusion”, or “Federal Inheritance Tax”, or “Federal Death Tax”)?

 

This is the amount that can be passed to your beneficiaries free of any tax imposed at the federal level.  Luckily for most of us, this tax never kicks in and gets applies to our estate.  As a matter of fact, it only applies to less than 1% of the population.  I said “luckily”… perhaps we’d all like some of that luck!

 

See my Blog for a more detailed discussion of Federal Estate Tax and see my discussion of how the Marital Deduction plays a part in the Federal Estate Tax.

 

Estate planning is more than just saving on taxes (at any level).  If you need help, please feel free to give me a call.  I always answer my own phone.

 

 

Conclusion

Well, for now there is no conclusion.  We will keep our eye on things and see what happens.  These were just proposals after all.  Stay tuned!

My most important job is to listen to your wishes then suggest solutions.  Call today and let’s start planning!

 

See lots of estate planning information on my website at: www.myestate-plan.com

 

Thanks for reading!

 

Dan Powell

 

1-619-980-2297

 

****Reminder****

Just like my website, nothing in this blog is intended as legal advice. If you need legal advice, contact an attorney licensed to practice in your jurisdiction. I am licensed to practice law in California.  Further, please remember that I speak in generalities in my blog (and on my website). There are so many different factors that can contribute and completely change the outcome that it would not be practical to discuss all of them here. This is why I speak in generalities. Thanks again for reading.

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This document is for informational purposes only.  Nothing in this is to be considered legal advice.  Nothing in this shall create an attorney/client relationship, nor shall it create a confidential relationship.  If you need legal advice (in California), feel free to contact me or someone licensed to practice in your jurisdiction.  I assume no liability or responsibility for actions taken, or not taken, as a result of reading this information.

Published in Trump's 2017 Tax Plan

ILIT Trusts – Keeping the Proceeds out of the Insured Estate for Federal Estate Tax Purposes

 

 

Do Life Insurance Proceeds get Included in my Estate for Death Taxes?

 

What are Death Taxes?  For the purpose of federal tax, the is something called federal estate tax exclusion and it is adjusted, or indexed, for inflation.  In 2016 the federal estate tax exclusion is $5.45 million dollars for an individual, and $10.9 million dollars for a couple.  That means that an individual dying in 2016 with an estate valued at less than $5,450,000 dollars will not owe any federal estate tax.

 

So how do we determine what is includable in the decedents estate for federal estate tax?  Let’s leave that for another discussion.  Suffice it to say that generally life insurance IS includible in the insured’s estate for death tax purposes.  Even an Irrevocable Life Insurance Trust (ILIT) may be included in the insured’s estate.  An ILIT is used expressly TO keep the proceeds out of the insured’s estate, so what gives?  Well, if the Irrevocable Trust is poorly drafted or managed, the proceeds may be included.  Also, if the insured gratuitously transfers all the rights in the policy within three years of his or her death, the Internal Revenue Service code section 2035(a) makes the proceeds includible in the decedent’s estate for federal estate tax purposes.   The reason is the way the IRS sees it is that the gift was made “in contemplation of death”, and therefore is disallowed. 

 

 

Does an ILIT’s proceeds get included in my Estate for Death Taxes?

 

The purpose of an Irrevocable Life Insurance Trust is to keep the proceeds out of the insured’s estate for federal estate tax.  This is achievable if the above criterion is met (policy not transferred within three years of the insured death), and certain other criteria is also met.  One of these is that the insured must not require that the beneficiary use the proceeds to pay obligations of the estate such as taxes.  Another is that the insured must not possess “incidents of ownership”.

 

 

What are Incidents of Ownership?

 

Incidents of ownership means the power of the insured or his or her estate to control the proceeds of the policy, the power to change beneficiaries, to assign the policy, to borrow or loan from the policy, and others. 

 

So, as you can see there are many restrictions and requirements in how the Trust is drafted, and how it is maintained in order for this ILIT Irrevocable Trust to function as intended.   Consult an attorney like me for your Estate Planning needs to help insure a proper outcome. 

 

 

Please see my Blog for continued discussion of various aspects of ILIT Trusts.

 

 

Please feel free to give me a call and we can establish your Living Revocable Trust, ILIT, or other Estate Planning goals today.  If you have specific estate planning objectives, I can help create solutions to achieve your specific purpose. 

 

See lots of estate planning information on my website at: www.myestate-plan.com 

 

Thanks for reading my blog.

William Daniel Powell

619-980-2297

This email address is being protected from spambots. You need JavaScript enabled to view it.

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This document is for informational purposes only.  Nothing in this is to be considered legal advice.  Nothing in this shall create an attorney/client relationship, nor shall it create a confidential relationship.  If you need legal advice (in California), feel free to contact me or someone licensed to practice in your jurisdiction.  I assume no liability or responsibility for actions taken, or not taken, as a result of reading this information

Also, please remember that I speak in generalities in my blog and my website. There are so many different factors that can contribute and completely change the outcome that it would be impractical to discuss all of them here.

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What is The Marital Deduction in Federal Estate Taxes?

 

 

Unlimited Marital Deduction

 

What is the Unlimited Marital Deduction? The Unlimited Marital Deduction allows the first spouse to die to transfer an unlimited amount of property to the surviving spouse free of Federal Estate Tax.  This does not mean that the second spouse to die will not have any Federal Tax liability.  Whether the second spouse to die will owe federal estate tax depends on the size of the estate when the second spouse passes.  In 2016, if the estate is less than $10,900,000, the spouses can pass all of their estate to their heir’s federal estate tax free (as long as it is properly passed).

 

 

Estate and Gift Tax Exclusion

 

In 2016, the IRS has set the Estate and Gift Tax Exemption amount at $5.45 million dollars for an individual.  Thus, a married couple can leave $10,900,000 to their heirs free of Federal Estate Tax.  This Estate Tax Exclusion amount is indexed and adjusted for inflation and was increased from $5.43 million in 2015.

 

 

Portability

 

Now what is Portability? Portability is the ability of the second spouse to use the unused estate tax exclusion amount of the first spouse to die.  If the first spouse to die does not use all of their estate tax exclusion, this is called the Deceased Spousal Unused Exclusion Amount or DSUE.  This unused portion used to be lost, but now portability can save this unused amount for the benefit of the second spouse upon their passing.  Upon the second spouses passing, their applicable Estate Tax Exclusion (in 2016 it is $5,450,000) is their own Estate Tax Exclusion amount plus their deceased spouses DSUE amount. 

 

 

How much of the Marital Deduction Should be used?

 

While an unlimited amount can be passed estate tax free from the first spouse to the second when the first spouse dies, care must be taken because this can increase the taxable estate of the second spouse.  Where spouses own significant assets, advanced planning can be used to reduce the federal estate tax liability.  This is the case when an individual or couple owns more than the applicable Estate Tax Exclusion amount.

 

See lots of estate planning information on my website at: www.myestate-plan.com

 

Please see my blog for more on Federal Estate Tax and advanced planning techniques.  Call me today and let’s get your Estate Plan together.

 

Thanks for reading my blog.

 

William Daniel Powell

619-980-2297

This email address is being protected from spambots. You need JavaScript enabled to view it.

 

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This document is for informational purposes only.  Nothing in this is to be considered legal advice.  Nothing in this shall create an attorney/client relationship, nor shall it create a confidential relationship.  If you need legal advice (in California), feel free to contact me or someone licensed to practice in your jurisdiction.  I assume no liability or responsibility for actions taken, or not taken, as a result of reading this information

Also, please remember that I speak in generalities in my blog and my website. There are so many different factors that can contribute and completely change the outcome that it would be impractical to discuss all of them here.

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Saturday, 23 April 2016 00:37

Same-Sex Couples and Estate Planning

U.S. v Windsor

 

U.S. v Windsor was an estate tax case.  A same-sex couple were married in Canada and lived in New York.  One of the parties died in 2009 and gave her entire estate to the other named Edith Windsor.   She tried to claim the federal estate tax marital deduction and was denied by the IRS on the grounds of the DOMA provisions.  DOMA is the Defense of Marriage Act and stated that the definition of “marriage” and “spouse” for the purposes of federal law only included persons of the opposite sex.  Mrs. Windsor took the case to the Supreme Court of the United States and DOMA was held unconstitutional. 

 

After the U.S. Supreme Court decision, the IRS announced it would recognize for federal tax purposes the validity of a same-sex marriage that was valid in the state in which it was entered into, and it was not important where the couple is domiciled.  There has also been an expansion to include qualified retirement plans.  The decision in this case was on June 26, 2013.  A lot has transpired since this decision and on June 26, 2015 in Obergefell v. Hodges, the United States Supreme Court has declared that same-sex marriage is legal in all 50 states. 

 

 

The Effects of Windsor and Obergefell

Prior to the decisions in these two cases, a same-sex couple could not take advantage of the federal estate tax marital deduction, portability, and other deductions.  Post Windsor, estate planning for same-sex couples was complicated in that the couple could take advantage of federal level deductions, but perhaps encounter state level tax implications.  Since Obergefell, estate planning has become less complicated for same-sex couples. 

 

See lots of estate planning information on my website at: www.myestate-plan.com

 

I would love to help you create your estate plan and help you provide the kind of gift that you want to give to your beneficiaries.  Call me today and we can get it done!

 

Thanks for reading my blog.

 

William Daniel Powell

619-980-2297

This email address is being protected from spambots. You need JavaScript enabled to view it.

 

****************

This document is for informational purposes only.  Nothing in this is to be considered legal advice.  Nothing in this shall create an attorney/client relationship, nor shall it create a confidential relationship.  If you need legal advice (in California), feel free to contact me or someone licensed to practice in your jurisdiction.  I assume no liability or responsibility for actions taken, or not taken, as a result of reading this information

Further, please remember that I speak in generalities in my blog (and on my website). There are so many different factors that can contribute and completely change the outcome that it would not be practical to discuss all of them here.

****************

Friday, 08 April 2016 00:39

Recent Changes to Federal Estate Tax Law

Changes to Federal Estate Tax, Gift Tax, and Generation-Skipping Transfer Tax

 

How Changes to the Law Affect Tax Liabilities – Some History

 

Economic Growth and Tax Relief Reconciliation Act of 2001 (or EGTRRA)

 

There have been a number of changes to the federal law regarding estate, gift, and generation-skipping transfer tax since the early 2000’s.  These changes affect how, when, and how much federal tax is imposed on a person’s estate.  Estate planning attorneys have had to keep up with the changes in order to help their clients effectively manage estate taxes.

 

 

In 2001 President Bush signed the Economic Growth and Tax Relief Reconciliation Act of 2001 (or EGTRRA).  The effect of this law meant that for persons dying after 2001, EGTRRA gradually reduced the maximum federal estate, gift and generation-skipping transfer tax from 55 percent to 45 percent in 2007 to 2009.  For those dying after 2009, EGTRRA eliminated the Federal Estate Tax and Generation-Skipping Transfer Tax, but not the Federal Gift Tax.  By the way, a Generation-Skipping Transfer Tax is one imposed on gifts that skip a generation such as where a grandparent gives an inheritance directly to a grandchild.  In 2010, the Gift Tax was to be set to the highest federal income tax rate.  These provisions were set to “sunset” or expire December 31, 2010.  This means that people dying after December 31, 2010 were subject to – or more accurately their estate was subject to the pre-EGTRRA rules and amounts.

 

Along Comes the “2010 Tax Act”

 

The president signed the so-called “2010 Tax Act” (or sometimes “2010” Act) – not surprisingly – in 2010.  This was set to expire December 31, 2012.  These guys always seem to kick the can down the road!  Oh well.  What this legislation did was that it increased the exemption amount to five million, reunited the lifetime gift with the estate tax exemption and was also set at five million.  Moreover, it also set the generation-skipping transfer tax to five million.  The estate, gift and generation-skipping transfer tax rate was set to 35 percent.  The 2010 Tax Act also introduced portability of unused estate tax and gift tax between spouses where previously if it were unused by the spouse it was lost.  What this means is that with the estate tax exemption set to 5 million, a spouse could give the other spouse up to 5 million on their passing free of any federal estate tax.  When the second spouse died, they could give up to 10 million dollars to an heir free of any federal estate tax.  Under the old rule, if the first spouse only gave the second spouse 1 million, the second spouse could only give 6 million to the heirs free of any federal estate tax.  Portability means that this 4 million that was unused by spouse one can be utilized by spouse two.  This portability didn’t apply to the generation-skipping transfer tax like it did to the estate tax and gift tax. 

 

 

Now ATRA is Signed

 

This new legislation was signed in 2013 and “solidified” a few things.  The law increased the top marginal tax rate for estate tax, gift tax, and generation-skipping transfer tax from 35 percent to 40 percent. It reaffirmed portability as well as the 5 million exemption for estate, gift, and generation-skipping transfer tax and is indexed for inflation.  The new law also included a deduction for any state death taxes, and increased the top marginal income tax rates for individuals and Trusts and Estates from 35% to 39.6%.  It was also not set to sunset.  But who knows what the politicians will do.  Candidate Bernie Sanders has indicated he wants to lower the exemption amount and increase the top rate to somewhere around 65%.  I don’t know how you feel about it, but this is money that an individual earned, paid taxes on, had the discipline to save and the want to take care of loved ones with, and now the government wants to take more than half!  Wow, what did they do to have the right to take that money?  Well, they work for us… we have to fire them!

 

Please see the rest of my Blog for more on Federal and California Estate Tax

 

See lots of estate planning information on my website at: www.myestate-plan.com

 

My most important job is to listen to you and your goals, then create the best estate planning documents to achieve these results.  Call me today and let’s start planning!

 

Thank you for reading!

 

William Daniel Powell

1-619-980-2297

 

****Reminder****

Just like my website, nothing in this blog is intended as legal advice. If you need legal advice, contact an attorney licensed to practice in your jurisdiction. I am licensed to practice law in California.  Further, please remember that I speak in generalities in my blog (and on my website). There are so many different factors that can contribute and completely change the outcome that it would not be practical to discuss all of them here. This is why I speak in generalities. Thanks again for reading.

****************

This document is for informational purposes only.  Nothing in this is to be considered legal advice.  Nothing in this shall create an attorney/client relationship, nor shall it create a confidential relationship.  If you need legal advice (in California), feel free to contact me or someone licensed to practice in your jurisdiction.  I assume no liability or responsibility for actions taken, or not taken, as a result of reading this information.

 

Sunday, 03 April 2016 20:42

How Much is Federal Estate Tax

 

Federal Estate Tax

 How Much Federal Tax Will I or my Kids Have to Pay?

 

Usually one of the first questions that people ask when they start Estate Planning whether it be a Will, Revocable Living Trust, or other means of probate avoidance is something like “how much estate tax will I have to pay?” or “how can I avoid taxes?” or “how can I help my kids inheritance from being taxed?”.  It is easy to understand why the subject of tax is so important to so many of us.  It can really take a bite! 

 

 

The good news for the vast majority of us is that Federal Estate Tax won’t be an issue.    However, living in San Diego especially, and Southern California in general, can push some of us closer to the Federal Estate Tax.  This is so because of the higher value of our home.   Many different steps are used to compute the Federal Estate Tax, and there are many variables that affect what property is includible in a person’s gross estate in making such a computation.  For 2016, the Federal Estate Tax Exemption is $5,430,000.  This means that an individual can leave $5.43 million to their heirs and no Federal Estate Tax will be imposed.  A married couple can essentially leave $10,860,000 to their heirs without triggering the Federal Estate Tax.  This Exemption amount is indexed for inflation which means that the Exclusion amount increases each year.  As of now, the top federal estate tax rate is 40%.  These rules and amounts have changed quite a bit over the last 16 years, and there is no guarantee that they will remain where they are.  Democrats and Democratic candidates have suggested they would like to lower the Exclusion amount and increase the top federal rate to as much as 65 percent!  I won’t leave Republicans out of the discussion in saying who knows what goes through any politician’s head!

 

Because many actions (such as gifts, selling property, etc.) and different types of property can influence taxes, you should consult an attorney and potentially a tax professional.

 

Please see the rest of my Blog for more on Federal and California Estate Tax

 

See lots of estate planning information on my website at: www.myestate-plan.com

 

My most important job is to listen to you and your goals, then create the best estate plan to achieve these results.  Call me today and let’s start planning!

 

Thank you for reading!

 

William Daniel Powell

1-619-980-2297

 

****Reminder****

Just like my website, nothing in this blog is intended as legal advice. If you need legal advice, contact an attorney licensed to practice in your jurisdiction. I am licensed to practice law in California.  Further, please remember that I speak in generalities in my blog (and on my website). There are so many different factors that can contribute and completely change the outcome that it would not be practical to discuss all of them here. This is why I speak in generalities. Thanks again for reading.

****************

This document is for informational purposes only.  Nothing in this is to be considered legal advice.  Nothing in this shall create an attorney/client relationship, nor shall it create a confidential relationship.  If you need legal advice (in California), feel free to contact me or someone licensed to practice in your jurisdiction.  I assume no liability or responsibility for actions taken, or not taken, as a result of reading this information.

 

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