Estate Tax Planning
is often a critical
component of the
estate planning
process for high net
worth individuals.
While everyone can
protect $2,000,000
of assets from
federal estate
taxes, it is
important to note
that with insurance
policies and
retirement accounts
it is very easy to
surpass the
$2,000,000
threshold. For
individuals that
have taxable estates
in excess of the
$2,000,000 federal
estate tax
exemption, the
excess can be taxed
at federal estate
rates as high as
45%. Other assets
such as IRAs or
retirement accounts
can be taxed at high
as 75%. The purpose
of estate tax
planning is to set
up structures that
minimize the assets
that will be subject
to very onerous
estate taxes so that
more assets pass to
family members.
Gift Tax Planning
As part of the goal to avoid
estate taxes at death, gift
transfers become an
important part of the
planning process. Every
individual can gift $12,000
per year to as many
individuals as he or she
likes. For a married couple,
the amount doubles to
$24,000. This is called the
annual exclusion amount. It
is indexed for inflation and
periodically increases. If
there are many children and
grandchildren within the
family, large tax-free gifts
can be made annually. These
tax-free gifts can reduce
the size of the estate and
the ultimate estate tax. In
addition to the $12,000
annual gift tax exclusions,
an individual also has the
ability to gift tax-free
$1,000,000 over his or her
lifetime ($2,000,000 for a
married couple). If the
$1,000,000 amount is gifted
during an individual’s
lifetime and invested, the
appreciation and income
generated by those assets
will also be excluded from
the estate. Many times the
annual exclusion gifts and
lifetime exemption are made
to a trust to keep control
away from the intended
beneficiaries. Implementing
estate planning strategies
such as Family Limited
Partnerships, Qualified
Personal Residence Trusts
and Grantor Retained Annuity
Trusts can substantially
leverage the $12,000 annual
gift tax exclusion and the
$1,000,000 lifetime gift tax
exemption.
