Maximizing Year-End Tax Planning with Your Estate

tax end of year planning estate

Now that the end of the year is quickly approaching and it’s a good reminder to set up a meeting with your CPA or estate planning attorney to discuss any major changes in your life this year. Getting these changes documented or a strategy in place before the end of the year can give you peace of mind and ensures that it doesn’t slip from your to-do list. This is a strategic opportunity to review your estate planning and your wealth planning strategies, whether you’re unsure about what to do with surplus wealth, hoping to give more in the new year, planning a business transition, or concerned about making gifts to leverage benefits, now is a good time to schedule these conversations. You can take advantage of a lifetime exemption of $12.92 million to protect transfers of money from gift and estate tax. Otherwise, the tax rate for these transfers is 40%.

If you’re a married couple, this exemption doubles to $25.84 million. Making gifts during your lifetime can help eliminate the future appreciation of these assets from your taxable estate while also supporting your loved ones.

You can also take advantage of the annual exclusion of gifting up to $17,000 annually to another person without impacting their lifetime exemption. This amount increases to $34,000 for married couples and is anticipated to rise to 18,000 for individuals and 36,000 for couples in 2024. These gifts can be made directly into custodial accounts, 529 college savings plans, or into trust. Communicating with your estate planning lawyer in Virginia about the best strategies for handling this is strongly recommended.

Joint Bank Accounts Can Be Problematic for Crises

Establishing joint accounts that are used by both children and parents can seem like the most effective way to handle financial emergencies or to step in if someone needs assistance with their finances as they get older.
But this can cause significant estate and tax planning problems and another strategy might be more effective.
Parents often consider adding their child to their bank account in case something happens to them and the primarily goal of a parent who intends to do this is to give children access to finances during an emergency.
Many parents, however, need to know that simply making the child a joint owner of a bank account can have significant unintended consequences and can be especially problematic during a family crisis. Many banks set up these joint accounts as joint with rights of survivorship. This means that upon the death of either one of the owners, the assets automatically transfer to the surviving owner. This can create a couple of different problems.
First of all, if the intent was for the assets still inside the account need to be distributed via a will’s terms, this will not happen. Furthermore, adding anyone other than a spouse could lead to a federal gift tax issue and if a parent adds a child to a major savings accounts and the child passes away prior to the parent, then half of that account value could be incorporated into the child’s estate for estate inheritance tax purposes.
In certain locations around the United States, this could trigger significant estate taxes paid at the state level and should therefore always be avoided whenever possible.
Scheduling a consultation with an experienced estate planning professional can help open your eye to the various challenges associated with using a joint account and determining whether other vehicles such as a trust might be more appropriate for your individual needs.

Tax Planning Tips to Remember as You Approach the End of the Year

An uncertain legislative and tax environment should be prompting you to analyze all tax opportunities as you look forward to 2018. There are several different things you can incorporate into your planning considerations for 2017 as an individual. These include:

  •       Deferring income and accelerating deductions if you can.
  •       Using itemized deductions before they disappear.
  •       Leveraging local and state sales tax deductions.
  •       Considering making charitable donations now.
  •       Getting your charitable house in order.
  •       Use increased withholding to make up a tax shortfall.
  •       Leveraging your retirement account tax savings.
  •       Documenting business activities.
  •       Treading carefully with estate planning and scheduling a consultation with a lawyer to review your existing estate plan.
  •       Evaluating your state residency status when you split your home between two places.

All of these steps are important and can provide you with further information about

mistakes you could be making that could compromise your ability to be successful with both your taxes and your retirement planning. Incorporating long term care planning, legacy planning, and tax planning all together gives you greater peace of mind for the future.
Ready to choose a plan that works for you? Estate planning is a very personal process and one that might change over time as your family structure and needs evolve. Take the time to meet with your estate planning attorney at least annually to review what’s no longer working for you and how you can plan for yourself and your loved ones.

Caregivers Can Use Checklist For Loved One’s Legal Affairs

Caregivers have so very many responsibilities toward their loved ones, but some may not realize that keeping track of their legal affairs is almost on a par with watching out for their physical health, a recent article on the website of the AARP points out.
“The ultimate goal is to make sure you have all the decision-making rights you need to manage your loved one’s affairs,” Charles Sabatino, director of the American Bar Association’s Commission on Law and Aging, was quoted as saying.

Sabatino offered six tips to protect a relative’s legal rights as well as those of the caregiver.
Have the right documents
In addition to a will, make sure your loved one has a health care power of attorney as well as a power of attorney for financial decisions. These legal documents will allow an appointed person to make decisions for a frail or incapacitated relative.
Make a family plan
Discuss caregiving matters with all involved members of your family. Have your loved one put in writing who will be responsible for which caregiving roles — and have all parties sign. This is not a legal document, but it will help keep peace within the family by making everyone’s role clear
Organize important papers
Most people don’t realize how many legal documents they already have, or how many they will need for matters that arise. Important ones include birth and marriage certificates, divorce decrees, citizenship papers, death certificate of a spouse or parent, power of attorney, deeds to property and cemetery plots, veteran’s discharge papers, insurance policies and pension benefits.
Explore potential financial help
Investigate public benefits such as Social Security and Supplemental Security Income disability programs, veterans’ benefits, Supplemental Nutrition Assistance Program, formerly known as food stamps, Medicare and Medicaid. Also, examine your loved one’s private disability or life insurance coverage, their pension benefits, long-term care insurance and employee health insurance policy to see whether any of them cover home health visits, skilled nursing, physical therapy or any kind of short-term assistance that could include a mental health therapist or physical therapy.
Think beyond your loved one
If your parent is unable to take care of people who depended on him or her, you may need to take care of that role. This includes assuming responsibility for adult children with special needs.
Look for tax breaks and life insurance deals
Keep all medical expense receipts for tax deductions. Your family member may claim federal deductions for many medical expenses including a hospital bed or wheelchair, out-of-pocket expenses not covered by health insurance (drug costs and copayments), remodeling the home to make it handicapped accessible and a respite caregiver to give the main caregiver a break.

List Of ‘Where Not To Die’ Updated For 2015

In the somewhat macabre Forbes magazine’s annual list of “where not to die in 2015,” some changes are noted over the recommendations for the current year.

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(Photo credit: Wikipedia)
Since most people probably think there is no such thing as a good place to die at all, the focus for the publication’s ongoing series tends to be on life’s other main inevitability, taxes. “The tally of death tax jurisdictions remains the same for 2015, 19 states plus the District of Columbia, but eight states are ushering in changes in 2015,” according to the article. “The states are lessening the death tax bite by increasing the amount exempt from the tax, indexing the exemption amount for inflation, and eliminating ‘cliff’ provisions that tax the first dollar of an estate.”
The biggest changes, the story noted, were made in New York and Maryland.
“The Maryland legislature acted first. The new law gradually increases the amount exempt from the state estate tax from $1 million this year, to $1.5 million in 2015, $2 million in 2016, $3 million in 2017, and $4 million in 2018. Finally, in 2019 it will match the federal exemption, which is projected to be $5.9 million.
“Still there’s a big catch in Maryland for some: even if no estate tax is due, depending whom you leave your assets to at death, a separate inheritance tax may be assessed. Spouses, children and their spouses and children, parents and siblings are all exempt from the state inheritance tax, but a niece or aunt or friend, for example, would owe the inheritance tax at a rate of 10 percent. Maryland and New Jersey are the only two states that have an inheritance tax in addition to an estate tax.”
The changes in New York were described in the article as “sweeping.”
In New York, lawmakers decided to more than double the exemption for deaths after April 1 of this year, from $1 million to $2,062,500. The exemption in the Empire State will also increase over time, to eventually match the federal exemption, reaching $5,250,000 by April 1, 2017.
“Other states where the exemption amounts are climbing include Tennessee, Minnesota and Rhode Island,” according to the article. “Tennessee’s estate tax is on its way out; the exemption is $5 million for 2015, and it’s repealed as of Jan. 1, 2016. Minnesota’s exemption is climbing steadily; it will be $1.4 million in 2015, going up to $2 million in 2018. Rhode Island bumped its exemption amount from $921,655 this year to $1.5 million in 2015. The $1.5 million will be indexed for inflation. Also a big deal: Rhode Island eliminated a “cliff” so the tax only kicks in on amounts above the $1.5 million exemption amount.
“Other states indexing their exemptions for inflation like Rhode Island are Washington, with a base exemption of $2 million, and Hawaii and Delaware, which both match the federal exemption amount.”

Those With Offshore Accounts Facing More Scrutiny

Honesty is the best policy, but the best way of being honest with the Internal Revenue Service when it comes to offshore accounts isn’t always easy to discern.

Logo of Internal Revenue Service, USA
Logo of Internal Revenue Service, USA (Photo credit: Wikipedia)
A recent article in Forbes magazine focuses of Credit Suisse officials pleading guilty back in May to conspiring to add U.S. tax cheaters.
That’s just the tip of the iceberg.
“More than 100 other Swiss banks are handing over leads that should eventually out more U.S. tax dodgers,” according to the article. “Israeli, Asian and Caribbean banks are all under investigation. Plus, the Foreign Account Tax Compliance Act, which took effect July 1, requires foreign financial institutions to report accounts held by U.S. persons to the Internal Revenue Service.
“But the best way to get right with Uncle Sam isn’t always clear–especially if, like lots of account holders, you’re not a flagrant tax cheat.”
While more than 45,000 U.S. residents are participating in the Offshore Voluntary Disclosure Program of the IRS, and paying in excess of $6.5 billion in back taxes in the process, the story points out that’s only a small percentage of people who admit on their tax returns that they “have a financial interest in or signature authority over a financial account, such as a bank account, securities account or brokerage account, located in a foreign country.”
“Some taxpayers decide to comply only going forward, gambling that an understaffed IRS won’t audit their old 1040s within the usual three-year statute of limitations,” the article continues. “Others have done ‘quiet disclosure,’ sending the IRS amended back tax returns and a check.
Heirs who don’t know all the facts and account holders whose behavior falls in gray areas have some tricky decisions to make, especially since the IRS in June made a ‘streamlined filing compliance option widely available. Under it a taxpayer, or his estate, has to pay only three years of back taxes, plus a (Foreign Bank Accounts Report) penalty equal to 5 percent of the account’s highest end-of-the-year value during the last six years. The catch? To qualify you must certify that previous lapses resulted from ‘non-willful’ conduct, which the IRS vaguely defines as ‘negligence, inadvertence, or mistake or conduct that is the result of a good faith misunderstanding of the requirements of the law.’ ”
“All of our clients are going to think their actions are not willful, but the government might not agree,” Fort Lauderdale tax lawyer Jeffrey A. Neiman, a former offshore prosecutor, told the magazine.

Tax-Free Gifts Flowed After Congress Changed The Law

A law passed late in 2010 has resulted in a quadrupling of tax-free gifts less than two years later, according to a recent item by Bloomberg News.

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(Photo credit: Wikipedia)
Congress approved legislation that let wealthy Americans make gifts with no tax penalties of as much as $5 million, and they sure responded, the story noted.
“U.S. taxpayers reported making $122 billion in nontaxable gifts on the returns they filed in 2012, more than four times the amount in each of the two previous years,” according to Bloomberg News.
The Internal Revenue Service released the data in late January.
“Most of the money, $84 billion, came in the form of gifts exceeding $1 million, and those were made by fewer than 30,000 people, according to the IRS,” the story stated. “The data cover tax returns filed in 2012. Typically, gift-tax returns are due on April 15 of the year after the gift is made.
“The law created a chance for wealthy families to move assets out of their estates and let their heirs benefit from any appreciation in value, said Lisa Featherngill, a managing director at Abbot Downing, a wealth-management unit of Wells Fargo and Co.”
“There was a huge scramble after 2010 to take advantage of the new law,” she told Bloomberg News. “There was concern that the law was going to revert.”
The 2010 law increased the lifetime gift-tax exclusion to $5 million from $1 million,” the story noted.
“The 2010 law was temporary and was scheduled to expire in December 2012, and estate planners encouraged their clients to make gifts soon in case Congress changed the law,” Bloomberg noted. “In January 2013, after the higher exemptions had technically expired, Congress extended the gift-tax changes and permanently linked them to inflation. The exclusion this year is $5.34 million per person.
That permanent feature of the tax code means that the increase in nontaxable gifts in 2012 probably won’t last, said Harry Stein, associate director of fiscal policy at the Center for American Progress, a Washington group typically aligned with Democrats.”

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Changes in the Law Change Where it’s Best to, Um, Die

Death may be a certainty, but the taxes attached to departing this veil of tears are anything but.
“When it comes to state death taxes, nothing’s certain,” according to a recent article on
Entitled “Where Not To Die In 2013 Update,” the piece described changes in the law in various states that have had an impact on estate taxes.
“ In the spring legislative season: Indiana made the repeal of its inheritance tax retroactive to Jan. 1; Delaware decided not to let its temporary estate tax sunset on July 1; and Minnesota tweaked its estate tax to apply to non-residents who own property there through pass-through entities, and it added a gift tax,” the story points out. “Meanwhile, North Carolina is poised to be the next state to do away with its estate tax as its legislature grapples with major tax reform in the coming weeks. That would bring the tally of states where you have to worry about a separate state estate or inheritance tax down to 19 states plus the District of Columbia.”
“Each state is looking at the state estate tax based on revenue considerations,” Charles D. Fox IV, an estate lawyer with McGuire Woods in Charlottesville, Va., was quoted as saying.
If the repeal does go through in North Carolina, it would be retroactive to the first of the year, the same as in Indiana.
“It’s a great bill because of automatic repeal,” Palmer Schoening, a conservative strategist who publishes the Family Business Report, told “North Carolina prides itself on being a bastion for retirees, but as it stands now their state isn’t friendly with respect to death taxes.”
Some states are moving in the opposite direction along the lines of Delaware’s extension of its expiring estate tax, according to the article.
“And Minnesota, with an estate tax with a $1 million exemption, made a significant change by adding a state-level gift tax that kicks in on gifts above $1 million. That makes it the second state to have a gift tax. Connecticut is the other; its gift tax kicks in at $2 million.
Minnesota also is trying to grab more revenue with tweaks that will disallow common ways folks now get around state death taxes. The new law pulls gifts made within three years of death back into the estate, and it requires non-Minnesota residents who own property in the state via a pass-through entity like a trust or partnership to include the value of that property in their estate for Minnesota estate tax purposes.”

How Healthy Are Your Finances? A Mid-Year Financial Check-up

One of our previous blog posts mentions upcoming changes to tax law this winter, and what further changes may be in store once November comes around and we know who will be in the White House next year. This could be interpreted as a reason to wait on making any changes to your estate plan; why update your plan when the laws may change in a few months or a year? But it’s not only changing tax laws that necessitate updates to your estate plan, and waiting too long can result in an unhealthy estate plan for you and trouble down the road for your loved ones.

According to this recent article in the USA Today Money section “A simple do-it-yourself checkup can be performed in less than an hour. All you really need is your [most recent] pay stub — the one that goes through the end of this week — and your 2011 tax return.” Once you have your pay stub in hand your next step is to “multiply your year-to-date earnings by two to get an estimate of 2012 income and compare it to last year’s final figure. The goal is to have a better idea of how your tax situation will look next year at tax time.”

That wasn’t too difficult, was it? Once you have an idea about how your financial situation may have changed, it’s time to look at family matters. “Review what might have changed this year. Do you have a new family member? Did one move out? Did you change jobs or move? Get married or divorced?” Any of these changes will require an update to your estate plan, regardless of your financial situation or the fluctuating tax laws.

If you have a little extra time, and you’re feeling motivated, you can also do a quick check of your retirement assets. “Take a look at your savings and any 401(k), IRA or Roth IRA that you have. Will you be able to max out 2012 contributions? Make sure you’re at least contributing enough to get the company match in your 401(k). And keep an eye on your medical reimbursement account, if you have one, to make sure you’ll spend it all by the end of the year.”

An estate planner can tell you exactly how your plan will need to change depending on your family and financial situation, but if you review and update your plan regularly you should never have any unexpected surprises, and you’ll always rest easy that your family and your assets are well taken care of.

Changing Tax Law and the Presidential Campaign

Curiosity and excitement are always to be expected in an election year—especially curiosity about taxes. We all know that each presidential candidate has very different philosophies about where the tax burden lies, how much should be paid, and by whom; but all most of us really want to know is how the implementation of each philosophy might affect us personally.

CNN Money recently published an article which attempts to explain just this: each candidate’s position on various tax policies and how it might carry over to our own wallets. The entire article is very informative, but of course the section that will be of most interest to our office and our clients is what the candidates have to say about the Estate tax. Here’s the scoop:

Estate tax: Until the end of this year, estates valued at more than $5.12 million are subject to an estate tax up to a 35% top rate. Barring congressional action, the value of estates subject to the tax will fall to $1 million and be subject to a top rate of 55% next year.

Obama: Would reinstate the estate tax at 2009 levels — meaning estates worth more than $3.5 million would be subject to the tax and face a top rate of 45%.

Romney: Would repeal the estate tax but preserve the gift tax rate at 35%.”

The thing to keep in mind when reading this is that the tax cuts from a few years ago are set to expire at the end of this year. This means that no matter who gets elected, estate tax laws will be changing come January 1st. Now is the time to get your assets in order, take note of any big changes in your life (either personally or financially) and get in touch with your estate planning attorney. Everyone will want to review/update their estate plan this winter, and the earlier you start preparing the better off you’ll be.