This post will review key tax concepts that are important to understand for estate planning purposes.
Federal Estate Tax Exclusion: Generally speaking, a person's estate is subject to an estate tax. However, the amount that is excluded from federal estate tax is $5.49 million in 2017. That means a decedent's estate can be valued at $5.49 million before the highest tax rate is applied. The federal estate tax exclusion amount is inflation adjusted, so it will presumably increase every year at the rate of inflation. However, if a person's estate is above $5.49 million, the excess will be taxed at a rate of 40%. Portability: This option allows the surviving spouse to take the deceased spouse's unused exclusion amount, if any, and add it to the surviving spouse's estate tax exclusion. Therefore, a couple can theoretically shield close to $11 million dollars in assets from estate tax. Portability used in conjunction with the unlimited martial deduction is a powerful wealth transfer tool. Federal Gift Tax Exclusion: Generally speaking, gifts are taxable. However, as discussed before in a prior post, an individual may give up to $14,000 (in 2017) per person without paying a federal gift tax. Anything above that will require filing a gift tax return. The federal gift tax exclusion and the federal estate tax exclusion is a unified credit, so if you gift away a certain amount during your lifetime, you estate and gift tax exclusion will decrease by the amount gifted. For example, Mary gifts $1 million to her son during her lifetime. Her estate and gift tax exclusion is then reduced from $5.49 million to $4.49 million. Unlimited marital deduction: This deduction allows spouses to pass an unlimited amount of property between themselves without paying any estate or gift taxes (if the spouse is a U.S. citizen). The unlimited marital deduction can be used to defer paying federal estate and gift taxes upon the first spouse's death. Generation-Skipping Transfer Tax: If a person transfers assets to a "skip person", which is someone who is at least two generations below the transferor, then the federal government will impose a tax called a generation-skipping tax. The federal generation-skipping tax exclusion amount is currently $5.49 million and the federal generation-skipping tax rate is currently 40%. The federal generation-skipping tax exclusion is also unified with the federal estate and gift tax exclusion amount. |
AuthorSamuel K.L. Suen is an attorney based in Honolulu, Hawaii specializing in estate planning, probate, conservatorship and guardianship matters. Archives
January 2017
Categories
All
DISCLAIMER: All content and information is provided by The Law Office of Samuel K.L. Suen, LLLC and is for general informational and discussion purposes only and does not constitute legal advice. Transmission of this information is not intended to create, and receipt does not constitute, a formation of an attorney-client relationship. The information presented at this site is believed to be accurate when made, but may not be complete, is not updated, reviewed or revised on a regular basis. No representations or warranties whatsoever, express or implied, are given as to the accuracy, applicability or validity of the information contained herein. The information may be modified or rendered incorrect by future legislative or judicial developments and may not be applicable to any individual reader's facts and circumstances. You should not act or rely on this information without consulting with a licensed attorney.
To ensure compliance with requirements imposed by the IRS, please note that any U.S. federal tax advice contained herein is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any transaction or matter that is contained herein.
Copyright © 2020 Law Office of Samuel K.L. Suen, A Limited Liability Law Company. All Rights Reserved.
|