Planning for Estate, Gift, Generation-Skipping and Fiduciary Taxation
West Palm Beach Planning for Estate Taxation Attorney
Our tax practice involves the laws related to transferring wealth and taxation of the income created by the plans we create. While our goal is to minimize taxes of whatever type related to our practice areas, we guide our clients to balance tax and non-tax issues according to their priorities and utilize strategies tailored to meet their goals.
Attorney Craig F. Snyder can help minimize estate, gift and generation-skipping taxes, and can help you transfer your wealth. He provides related estate planning services across Southeast Florida.
Liquidity, Gift Giving, and Estate Planning
When it comes to taxes, the cost to transfer your lifetime accumulations to your chosen beneficiaries can be significant. While current transfer tax rates can reach 35 percent, the law is in a state of change where inaction by elected officials could mean a return to rates of 50%. As your attorney, Craig F. Snyder can explain the options available to you for minimizing or reducing the costs associated with asset transfers and planning for the possibility of changing transfer tax laws.
Since the final tally of the transfer tax is made on the date of your death, the following example illustrates what can go wrong if you fail to plan properly (for simplicity and in light of the variability of tax rates in recent times, a 40% effective transfer tax rate is used):
Suppose your estate is worth $5 million upon your death. Due to the nature of the assets, liquidating or selling within the nine months needed to pay the tax is not a good option – your estate needs a loan to pay the tax bill. Assume the assets involved will remain at a value of $5 million until 9 months after your death. Assume further that market forces push the value of your estate assets down to $4 million after the 9th month following your death. The estate tax applicable to your estate, based on the initial value of $5 million, is $1.35 million. Assuming your estate borrowed funds with a secured loan because of the nature of the estate’s assets to pay the estate tax on the $5 million estate that has a $4 million actual value – and excluding interest on the loan – your beneficiaries will net $2.65 million instead of $3.65 million. Under this scenario, essentially 50% of your estate was lost, even though the tax rate was in the 40% bracket.
Frequently asked Questions about Estate Tax
Q. Since the estate tax is repealed in 2010 and the exemption is increased to $5million thereafter, that means I don’t have to plan for estate taxes, right?
A. Incorrect. While the estate tax is repealed for deaths within the year 2010 if certain actions are taken (see this paragraph below), there is an estate tax before and after 2010 that may be applicable, based on year of death and the value of the estate at that time. The newest federal estate tax law makes planning extremely important since, amongst other things, it “revives” a $1million “giving” threshold for estate’s of individuals who die after 2012 (the $5million exemption is only temporary), and moreover, it makes the repeal of 2010 one of choice as between no estate tax with a “carry over” cost basis rule, or estate tax with a $5million exemption and a “step up” cost basis rule for those handling estates of 2010 decedents. Choosing (to have repeal and carryover apply instead of estate tax and step up) is now a matter of planning and taking certain steps within a certain time and manner if you are dealing with a situation where death occurred in 2010. In addition, since many estate plans reference the estate tax to create post-death gifts, it is wise to update this important language to avoid mistakenly “disinheriting” or “over-inheriting” beneficiaries during a period of changing tax rules and/or wide potential swings in exemption levels.
Q. Since my estate is under the taxable threshold, that means I don’t have to plan my estate, right?
A. Incorrect. The new estate tax law includes a provision of “portability” to the surviving spouse’s estate for the exemption unused by the first spouse to die. Although this and current higher tax exemptions may seem to be a “relief” valve for married people in creating plans, or otherwise for less motivation by folks generally to plan on the theory that the survivor amongst them, or the estate as a whole, will be under the exemption threshold, acting or not based on this one new “rule”, and taxes generally, overlooks the following:
1. “Portability” instead of use of a “traditional” plan for spouse means appreciation of assets between the 1st and 2nd deaths is taxable in the survivor’s estate. It also means, assets that could remain free of the survivor’s creditors is subject to those future unknowns. In essence, the decision to let portability apply or not, is by its very nature alone a process that requires counseled planning.
2. Tax planning is but one part of the estate planning process. Whether married or not, do you want ultimate inheritance going to the creditors or divorcing spouses of your chosen beneficiaries? Or, do you want your chosen beneficiaries to enjoy whatever you may allocate for their benefit? If you answered “no” to the first question and “yes” to the second question, then you intuitively recognize that “estate” taxes are not the only reason for planning because there are these non-tax reasons, and many more that you may have forgotten or do not realize exist.
If your questions are still unanswered, please contact us.