The firm can handle complex tax matters, including estate tax planning, gift tax planning, generation skipping transfer tax planning, charitable tax planning, postmortem tax planning, disclaimers, obtaining private letter rulings, consulting with litigation attorneys in the review of settlement or mediation agreements, preparation and/or review of federal estate tax returns, the election of portability, taxation of individual retirement plans and other retirement plans and miscellaneous tax filings for estates and trusts.
Estate tax planning can involve a myriad of issues depending on the intent of the client and the goals of the client. While estate tax planning can avoid or defer estate taxes, the client’s goals are always forefront. You do not want the “tax tail” wagging the dog. While that is true, there are many techniques for saving estate taxes and estate tax planning discussions with the attorneys will clarify your goals. Many techniques involve trusts and other entities further discussed in Estate Planning Services.
Gift tax planning involves techniques to help you reduce the size of your estate for estate tax purposes, help your loved ones and if married, utilize the lifetime gift tax exclusion of you and, if married, your spouse. The lifetime exclusion of $5.490 (in 2017) million is for estate AND gift tax. You can thus make gifts during your lifetime to leverage that exclusion, pay no gift taxes and transfer the appreciation of the assets while keeping the assets in the family. You can also make gifts of up to $14,000 per year to as many individuals as you wish. Gift tax planning can involve trusts which are discussed in Estate Planning Services.
Not only does the Internal Revenue Service (“IRS”) impose an income tax, a gift tax and an estate tax but also a generation skipping transfer tax. Like the gift and estate tax, an exemption amount is allowed which, in 2017, is equivalent to the lifetime gift and estate exclusion amount of $5.490 million. The generation skipping transfer tax is imposed on transfers (either lifetime or at death) to individuals 2 or more generations below you, such as grandchildren, great nieces and nephews and friends in such generation. The generation skipping transfer tax law is extremely complicated and most planning utilizes the exemption amount to the greatest advantage.
Many individuals are charitably inclined and, for the most part, charitable distributions in life or death have favorable tax consequences in the form of a tax deduction of some amount. There are very strict requirements for transfers to trusts to be able to deduct the amounts being distributed to charities. Many individuals find that making a charity a beneficiary of their retirement plans may be the most beneficial because of the tax exempt nature of the charity. There are also private foundations that may work for some individuals. The charitable deduction is a very valuable tool in Estate Planning.
Often estate tax planning implements appropriate estate tax planning techniques. However, sometimes the techniques are not even addressed in the initial stage of estate planning. The time after an individual dies is often when the issues of bad estate planning, simple mistakes and other more serious mistakes can be discovered and this is when post mortem tax planning can occur. There are several ways to “fix” problems. Florida law permits trust modifications specifically for tax issues and may be used with success with the IRS. Other available avenues are disclaimers, trust reformations and modifications, and settlement agreements.
Disclaimers are a particularly good tool in saving estate planning techniques. If a person disclaims (refuses the gift from the estate or trust), then the transfer by the person disclaiming is not considered a gift by the person disclaiming and no gift taxes would be due. A disclaimer may save an estate plan by avoiding the tax bite on the distribution.
An example best illustrates this. Suppose, at Bill’s death, Bill’s trust distributes all of his assets to his wife, Martha. While the distribution to Martha will qualify for the federal estate tax marital deduction and portability may be allowed (see discussion below), there could be a reason that Martha wants to “refuse” those benefits to use Bill’s $5.490 million exclusion amount. Those assets could be disclaimed and placed in trust for Martha’s benefit but those assets should be protected from Martha’s future creditors or spouse while the assets remain in trust for Martha. Asset protection may be very important to Martha and Bill, especially if Martha is in a high risk profession. Further, those assets could appreciate substantially and benefit Bill and Martha’s children as those assets are not included in Martha’s estate when she dies and will not incur estate tax at Martha’s death.
To qualify for tax purposes, the disclaimer MUST be completed within 9 months after the date of death. That is why it is EXTREMELY important to see us shortly after the death of a loved one. Further, except in the case of a spouse such as Martha, the disclaimant cannot accept any benefits. An exception is provided for a spouse which is why Martha could be the beneficiary of Bill’s trust. If, however, Martha was a child, the child could NOT accept any benefits. There are other requirements for a valid disclaimer and careful review of tax law AND state law is required.
Prior to a transaction or as a method of clean up, a client may want to apply to the IRS for a private letter ruling to determine if the course of action the client wishes to take will result in the tax consequences the client believes will happen.
The IRS has very specific requirements as to the content of the private letter ruling request. This is an area where a client should have an experienced estate Tax Planning attorney in Clearwater. The key to a positive private letter ruling request is to state clearly the facts and to present the facts in a persuasive manner to achieve the tax result a client desires. Many times a client does not know how the IRS will decide on certain facts and there are certain situations for which the IRS will NOT issue a private letter ruling.
If, however, the private letter ruling is successful, then the client will be assured that what they plan to do will work as expected for tax purposes. This is critical if you want to be sure that what you are planning to do works! Even though other private letter rulings can be found (private letter rulings are published by the IRS) that “bless” your transaction, a private letter ruling is ONLY binding on the individual who requests the private letter ruling. Thus, while you can review similar private letter rulings and create a fact scenario similar to other successful private letter rulings, you can NOT rely on another successful private letter ruling.
Often individuals find themselves embroiled in a litigation matter where they have to attend mediations, arbitrations or settlement conferences. Most litigators are not tax attorneys so they may not know the tax consequences of the transactions. If you are involved in such a matter, then you should have a tax attorney review any mediation, arbitration or settlement agreement to determine whether adverse tax consequences could result to you. While you may agree to those adverse tax consequences, you should know what they are before the filing of your income tax return when your CPA may surprise you with some bad news.
When a person dies, the personal representative is responsible to make sure that all appropriate tax returns are filed. Estates over a threshold amount, currently in 2017, $5.490 million, are required to file a Form 706, United States Estate (and Generation Skipping Transfer) Tax Return within 9 months of the date of death. While that may seem like a long time, the estate tax return deadline will approach quickly. While the return due date can be extended, PAYMENT of the estate taxes can only be extended for particular reasons. The estate tax return is very complicated and can take quite a long time to complete. You will have to obtain appraisals (which can be voluminous, especially if the estate owns a lot of real estate and businesses). Qualified CPAs in Clearwater can prepare these returns and our firm may be hired to review them. We can also initially prepare such returns. Many schedules are necessary and attention to detail is paramount.
Ms. Griffin practiced as a CPA for 38 years and was with Price Waterhouse for three years in Atlanta and Tampa. With her past experience as a CPA, our Clearwater firm can provide needed expertise in preparing or reviewing such Form 706, United States Estate (and Generation Skipping Transfer) Tax Return. The firm can also review other returns but focuses primarily on Form 706, United States Estate (and Generation Skipping Transfer) Tax Return.
Portability became permanent in 2013. Portability allows a surviving spouse to utilize the unused portion of their predeceased spouse’s exclusion amount.
For example, Bob and Martha are married. When Bob dies he gives everything to his wife. His estate does not have to use his exclusion because there is a 100% marital deduction for assets distributed outright to his spouse. Assuming that Martha does not remarry, if she dies in 2017, she will not only be able to use her own $5.4590 million exclusion but also Bob’s exclusion of $5.490 million for a total of $10.98 million. If Martha dies in a later year, then her exclusion amount may increase because of an inflation factor but the use of Bob’s exclusion will remain at $5.490 million.
To use Bob’s exclusion, Martha MUST file a Form 706, United States Estate (and Generation Skipping Transfer) Tax Return for Bob to elect to use portability. This is extremely important because, if Martha does not file a return and elect portability, then the use of Bob’s exclusion is LOST.
Many times a surviving spouse does not believe they will need to use their predeceased spouse’s unused exclusion but one never knows what can happen in the future. It does not appear that there is any downside to electing portability except for the cost of doing so. However, when you look at the estate tax savings the cost is very efficient. In Bob’s case the election of portability could save as much as $2.196 million in taxes ($5.4590 million times 40%).
While portability may not work in every situation it can be quite useful especially with large individual retirement accounts or other retirement plans.
The largest asset most people own are their individual retirement accounts and their work retirement plans. Unfortunately, the time most people devote to the preparation of a beneficiary designation is very small in comparison to the time spent on wills and trusts. If you think about the time it takes you to prepare your wills and trusts, sometimes weeks and months, can you honestly say that you spend that time thinking about your beneficiary designation? We would venture to say you may, at the most, spend a few minutes completing the form that distributes a large portion of your assets!
We can review the beneficiary designations you currently have, advise you as to the tax consequences, not only during your lifetime but also at your death. IF you want a trust to be a beneficiary of a retirement plan, then you must be VERY careful in the drafting of such a trust. The IRS does not make it easy to take advantage of the deferral when a trust is the beneficiary. We can help you navigate those shores.
Our firm can also prepare other necessary tax forms, including, but not limited to the Form 2848-Power of Attorney and Declaration of Representative and the Form 56-Notice Concerning Fiduciary Relationship. As discussed above, we also prepare the Form 706- United States Estate (and Generation-Skipping Transfer) Tax Return. Generally, our firm does not prepare Forms 1041-U.S. Income Tax Return for Estates and Trust. However, upon request, we can review same.