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 ESTATE AND GIFT TAX                                   

Estate Tax Planning

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 individualís 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.
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