2015 Estate, GST and Gift Tax Update

2015 Federal Estate, GST and Gift Tax Update

January 2015

Federal estate tax exemption:
The federal estate tax exemption increased to $5,430,000 in 2015 (up from $5,340,000 in 2014). This means that individuals can make gifts during life or transfers at death of up to this new higher limit and owe no federal estate tax. The top federal estate tax rate remains unchanged at 40% (same as 2014).
Generation-skipping transfer (GST) tax exemption:
The exemption from GST tax also increased to $5,430,000 in 2015 (up from $5,340,000 for transfers in 2014).
Massachusetts estate tax exemption:
The Massachusetts estate tax exemption remains unchanged at $1,000,000.
Annual exclusion for gifts to non-citizen spouses:
The annual exclusion for gifts made in 2015 to non-citizen spouses increased to $147,000 (up from $145,000 in 2014).
Annual exclusion for gifts to non-spouses:
The annual exclusion for gifts made in 2015 to non-spouses remains at $14,000 (same as 2014).

Material presented on the King & Navins, P.C. website is intended for information purposes only. It should not be construed as legal advice or the formation of an attorney-client relationship. Please consult an attorney for individual advice regarding your own personal situation.

Funding your Revocable Trust to Avoid Probate

September 2013

Upon death, your individually held assets (assets that are not held jointly and do not have a beneficiary designation) pass through your Will to your named beneficiaries. If you have no Will, such assets pass by the laws of intestacy. Either way, your estate would need to go through a process in the Probate Court known as “probate”. The probate process requires newspaper notices, an appointment of a Personal Representative, letters to heirs, and a statutory waiting period, all of which can be quite costly and time-consuming. The records of your Estate, including your Will, if any, and often an Inventory of your assets, become part of the public record.

A Revocable Trust is an estate planning tool that, among other things, allows you to avoid the probate process while maintaining control of your assets. During your lifetime, you can transfer title of your assets to the name of your Revocable Trust. You, as Trustee, would have complete control over all trust property, just as you did when the assets were in your individual name. You can pay expenses, make gifts, take out a mortgage, or do anything else associated with owning and enjoying property. During your lifetime, your Revocable Trust is not a separate tax paying entity for income tax purposes, and all income earned on Trust-owned assets would be reported on your own individual income tax return.

Upon death, your successor Trustee would be able to distribute Trust assets to beneficiaries of your choice in accordance with the terms of your Trust without any court involvement.

By funding your Revocable Trust during your life, you avoid the onerous and expensive probate process, and simplify and expedite the process of transferring assets upon death.

Material presented on the King & Navins, P.C. website is intended for information purposes only. It should not be construed as legal advice or the formation of an attorney-client relationship. Please consult an attorney for individual advice regarding your own personal situation.

Selecting a Guardian for your Children in your Will

June 2013

Does choosing a guardian for your minor children make you cringe? You are not alone. This is a difficult decision for most parents, and while there is no single “right” answer, here are some thoughts to consider.

A guardian is responsible for the daily personal care of minor children in the event of both parents’ deaths, and is authorized to make decisions involving living situation, education, medical care, etc. Therefore, you want to choose someone who cares about your children and can provide them with a nurturing, stable home life. Grandparents can be a good choice, but because of the generational difference and potential health challenges, you would want to also name a backup guardian. Siblings, cousins, and friends are also good options, depending on their own circumstances and location, as well as your (and their) children’s life stages. If you are thinking about naming a couple as co-guardians, be sure to clearly express your intent in the event of that couple’s subsequent divorce or one spouse’s death.

You may have concerns about a potential guardian’s fiscal responsibility. However, since most parents leave their children an inheritance (either from assets accumulated during life or from a life insurance policy) through a trust, a trustee manages the children’s money and decides if, when and how to make distributions. While you can name the same person as guardian and trustee, they require different skill sets, and one person may not be a good fit for both roles.

You may also have concerns about a potential guardian’s limited financial resources. However, your guardian is under no obligation to provide financial support for your children. While it may be awkward if there is major financial disparity between your children and guardian, you can manage this somewhat by allowing your children’s trustee to distribute money outright to your guardian if doing so is in the best interest of your children. For example, it may be advisable to utilize trust funds to pay for an expansion of a guardian’s home or to purchase a larger home to accommodate a guardian’s family as well as your own.

It is important that your guardian knows you well, particularly with respect to any child-rearing philosophy you may have. Preferences regarding matters such as religion, education or extracurricular activities can be memorialized in the form of a non-binding memo to guide your guardian. If you do create any such memo, keep it broad and flexible; you do not want to create more questions than answers.

While this may all seem very daunting, remember you can revise your Will during your lifetime as circumstances change. The best guardian for your newborn baby may not be the best choice when your child becomes more involved in his or her school and community. Be sure to revisit this question – however painful – every few years.

Material presented on the King & Navins, P.C. website is intended for information purposes only. It should not be construed as legal advice or the formation of an attorney-client relationship. Please consult an attorney for individual advice regarding your own personal situation.

What Happens if I do not Have an Estate Plan?

June 2013

Some people do not create an estate plan because they believe it is unnecessary, possibly because their assets are not valuable or assets are held jointly with a spouse. However, every person is in need of an estate plan and should establish documents that memorialize his or her wishes in the event of death or incapacity.

A General Durable Power of Attorney appoints someone to make financial decisions for you, and a Health Care Proxy appoints someone to make health care decisions for you in the event of your incapacity. If you were to become incapacitated without these documents, someone may have to go through the court system to be formally appointed as your Conservator for financial matters and as your Guardian for medical matters. These procedures can be very expensive, not to mention emotionally burdensome for everyone involved.

A Will provides for the distribution of your individually held assets upon death. It also appoints a Personal Representative, who would be in charge of final administrative matters such as filing last income tax returns, and a Guardian, who would be in charge of the care of any minor children. If you were to die without a Will, the laws of intestacy control the distribution of any individually held assets. This can have undesired consequences, especially when minor children are involved. Your family members, friends or the Probate Court would have to decide who should take control of your administrative matters and the care of your minor children. They are not necessarily in the best position to make such important decisions.

A Trust is an invaluable tool for accomplishing a number of estate planning goals, including estate tax minimization, privacy protection and control of assets after death. It can provide a vehicle to manage assets for minor children. If you do not have a Trust, your estate may be subject to unnecessary court proceedings and additional estate taxes, and distributions of assets could be made to your children (or grandchildren) at an inappropriately young age.

By creating an estate plan now, you can assure that your wishes are carried out, and that your family is not left trying to piece together a complex puzzle without your input.

Material presented on the King & Navins, P.C. website is intended for information purposes only. It should not be construed as legal advice or the formation of an attorney-client relationship. Please consult an attorney for individual advice regarding your own personal situation.

The American Taxpayer Relief Act of 2012: Estate, Gift and GST Tax

January 2013

On New Year’s Day 2013, Congress passed “The American Taxpayer Relief Act of 2012,” (the “Act”) which President Obama signed into law on January 2nd.  As many taxpayers were aware, the absence of action on Congress’ part could have meant the reversion of the 2012 estate, gift and generation-skipping transfer (GST) tax exemptions of over $5 million, and a maximum tax rate of 35%, to exemptions of $1 million, with a maximum tax rate of 55%.

The Act provides as follows:

  • Exemption Level:  The estate, gift, and GST tax exemptions are set at $5 million, indexed for inflation.  The inflation-adjusted exemptions for 2013 are $5.25 million.
  • Tax Rate: The top gift and estate tax rate now stands at 40%, a slight increase from the 35% rate in effect in 2012.  The GST rate is now 40%.
  • Portability: A surviving spouse may add the unused exemption of the first spouse to die to the surviving spouse’s own available exemption.  In order to preserve any unused exemption, a portability election must be made on a federal estate tax return upon the first spouse’s death.

Unlike prior laws, the Act is permanent, and is not automatically scheduled to adjust or sunset unless and until Congress changes the new rules.

Keep in mind that the Act does not alter the current Massachusetts exemption or rate.  The Massachusetts estate tax exemption remains at $1 million, with a maximum rate of 16%.

Material presented on the King & Navins, P.C. website is intended for information purposes only. It should not be construed as legal advice or the formation of an attorney-client relationship. Please consult an attorney for individual advice regarding your own personal situation.

2013 Gift Tax Annual Exclusion – Adjusted for Inflation

January 2013

The gift tax annual exclusion amount has increased from $13,000 in 2012 to $14,000 in 2013. This is the first increase since 2009. For calendar year 2013, the first $14,000 of gifts made to any one person is not included in the total amount of taxable gifts made during that year.

The lifetime gift tax exemption and the estate tax exemption are expressed as a total amount, currently $5.25 million per person, and it is possible to use this exemption to transfer assets during life and/or at death. If you exceed the exemption limit, you or your estate will owe tax of up to 40%.  However, gifts to charity and direct payments of medical expenses and tuition are excluded from gift tax and, therefore, do not use up any of your exemption amount.  Each individual is required to file a Gift Tax Return for the years during which he or she gifted over $14,000 (made a “taxable gift”) to any one person.  It is important to note that as long as the aggregate of lifetime taxable gifts remains under the exemption amount, no tax will need to be paid with the Gift Tax Returns; the filing is simply a way for the IRS to keep track of exemption use during life.

That means you can make gifts up to $5.25 million before you have to pay any gift tax. Any exemption remaining when you die can be used as an exemption from the estate tax.

Material presented on the King & Navins, P.C. website is intended for information purposes only. It should not be construed as legal advice or the formation of an attorney-client relationship. Please consult an attorney for individual advice regarding your own personal situation.

Aging With Dignity – Five Wishes

January 2013

A Health Care Proxy is a document which appoints someone (your “Agent”) to make health care decisions for you.  Your Agent’s authority is broad and includes the consent to or refusal of any medical treatment.   Usually, people name a spouse, if any, as the primary Agent, with a close family member or friend as the alternate if the primary Agent is unavailable.

Once you have identified your Agent, it is advisable to have a discussion with him or her about your wishes regarding end-of-life medical treatment.   This can be a very difficult conversation to have, but is helpful for your agent, as well as your health care professionals, if and when end-of-life decisions need to be made.

Aging With Dignity, a non-profit organization with a mission of promoting better care for those near the end of life, has created a document known as Five Wishes in order to facilitate this conversation with a view towards each person’s medical, emotional and spiritual needs.  To learn more about Five Wishes and to download the document, click here http://www.agingwithdignity.org/five-wishes.php

Material presented on the King & Navins, P.C. website is intended for information purposes only. It should not be construed as legal advice or the formation of an attorney-client relationship. Please consult an attorney for individual advice regarding your own personal situation.

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Material presented on the King & Navins, P.C. website is intended for information purposes only. It should not be construed as legal advice or the formation of an attorney-client relationship. Please consult an attorney for individual advice regarding your own personal situation.