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Estate
Estate Tax
2014 and Beyond - Estate
Tax
2014 - Estate Tax
Gift Tax (2014)
Generation-Skipping
Transfer Tax (2014)
2012 Estate Tax
Gift Tax (2012)
Generation-Skipping Transfer Tax
(2012)
2011
Estate Tax
Gift Tax (2011)
Generation-Skipping Transfer Tax
(2011)
2010 Estate Tax
Gift Tax (2010)
Generation-Skipping Transfer Tax
(2010)
Portability
(for 2011 and beyond)
Summary Applicable Credit
Amount
Generation-Skipping Transfer Tax
- How It Works
Form
706 United States Estate (and Generation-Skipping
Transfer) Tax Return
Will
Testate
Intestate
Probate
Asset Transfer by Operation
of the Law
Executor/trix, administrator/trix,
personal representative
Form 1041 U.S. Income Tax Return for Estate
and Trusts
Trust
Prudent Man Rule
Prudent Investor Rule
Income/Principal
Remaindermen
Estate
All the property you own including:
Real estate
Personal property (all property that is not real estate) which is divided into two types: tangible (any property you can touch such as furniture or jewelry) or intangible (property such as stocks, bonds, bank accounts, money other people owe you, insurance in which you have any incidents of ownership, medical insurance refunds due to you but not yet received)
Income earned but not yet paid (you get paid for the week every Friday, a dividend is between the ex-dividend date and the payable date, or a bond/bank account that accrues interest daily),
Certain transfers made during your life without an adequate and full consideration in money or money’s worth (for example, if you transfer assets to a trust over which you retain certain types of control)
Property over which you have a general power of appointment (you can specify who gets the property at your death),
Dower or curtesy (or statutory estate) of the surviving spouse (not in NH)
A tax is hereby imposed on the transfer of the taxable
estate of every decedent who is a citizen or resident of the
United States.
Estate tax law underwent a tremendous change under The
Economic Growth and Tax Relief Reconciliation Act of 2001. The
amount that a taxpayer could pass free to heirs increased
substantially until it reached $3.5 million in 2009. In 2010,
the estate tax was eliminated altogether. However, the Act
contained a provision which caused the entire law to 'sunset' as
of December 31, 2010. In effect, the law on January 1, 2011
would be as if the sweeping changes in 2011 never occurred, but
the American Tax Payer Relief Act of 2012 was signed making the
$5 million exclusion, adjusted each year for inflation,
permanent. The Act of 2012 also amended the tax rates and the
amounts they apply to. The 2012 Act also made permanent the
portability of spouses' unified credits.The following details
the estate law in 2010-2014 and thereafter, under the current
law:
On January 2, 2014, the American Taxpayer Relief Act of 2012
became law. It modified the Estate, Gift and GST Tax and
made permanent the increase in the amount exempted by the estate
and gift tax unified credits at $5 million (as adjusted for
inflation in multiples of $10,000 after 2011). The 2012
unified credit was $5,120,000 and the 2014 unified
credit is $5,340,000.
Paying estate tax: The Executor
files Form 706 on estates of greater than the unified credit and
pays estate tax according to the tax table as follows:
TAX TABLE FOR 2014 AND BEYOND:
| If the amount with
respect to which the tentative tax to be computed is: |
The tentative tax is: |
| Not over $10,000 |
18 percent of such amount. |
| Over $10,000 but not
over $20,000 |
$1,800, plus 20% of the
excess of the amount over $10,000 |
| Over $20,000 but not
over $40,000 |
$3,800, plus 22% of the
excess of the amount over $20,000 |
| Over $40,000 but not
over $60,000 |
$8,200 plus 24% of the
excess of the amount over $40,000 |
| Over $60,000 but not
over $80,000 |
$13,000, plus 26% of the
excess of the amount over $60,000 |
| Over $80,000 but not
over $100,000 |
$18,200, plus 28% of the
excess of the amount over $80,000 |
| Over $100,000 but not
over $150,000 |
$13,800, plus 30% of the excess of the amount over $100,000 |
| Over $150,000 but not
over $250,000 |
$38,800, plus 32% of the
excess of the amount over $150,000 |
| Over $250,000 but not
over $500,000 |
$70,800, plus 34% of the
excess of the amount over $250,000 |
| Over $500,000 but not
over $750,000 |
$155,800, plus 37% of
the excess of the amount over $500,000 |
| Over $750,000 but not
over $1,000,000 |
$298,300, plus 39% of
the excess of the amount over $750,000 |
| Over $1,000,000 |
$395,800, plus 40% of
the excess of the amount over $1,000,000 |
The 2012 Act increased the estate exemption amount (not
subject to estate tax) to $5,000,000 as adjusted for inflation.
For deaths occurring in 2014, the exemption amount is
$5,340,000. Estates greater than $5,340,000 are subject to a
maximum estate tax rate of 40% (see table above). All estate
assets receive a full step up in basis. Form 706 U.S. Estate
(and Generation-Skipping Transfer) Tax Return is due nine months
after the decedent's death.
The lifetime exemption amount for 2014 for gifts increase to
$5,340,000 (adjusted for inflation) with a maximum tax rate of
40% on gifts in excess of that amount.
Generation-Skipping
Transfer Tax (2014 and beyond)
The lifetime exemption amount is $5,340,000 (adjusted for inflation) with a maximum tax rate of 40% on taxable transfers.
The 2010 Act increased the estate exemption amount (not
subject to estate tax) to $5,000,000 as adjusted for inflation.
For deaths occurring in 2012, the exemption amount is
$5,120,000. Estates greater than $5,120,000 are subject to a
maximum estate tax rate of 35% (for amounts in excess of
$500,000). All estate assets received a full step up in basis.
Form 706 U.S. Estate (and Generation-Skipping Transfer) Tax
Return is due nine months after the decedent's death. See Table
below.
| If the amount with
respect to which the tentative tax to be computed is: |
The tentative tax is: |
| Not over $10,000 |
18% of such amount. |
| Over $10,000 but not
over $20,000 |
$1,800, plus 20% of the
excess of the amount over $10,000 |
| Over $20,000 but not
over $40,000 |
$3,800, plus 22% of the
excess of the amount over $20,000 |
| Over $40,000 but not
over $60,000 |
$8,200, plus 24% of the excess of the amount over $40,000 |
| Over $60,000 but not
over $80,000 |
$13,000, plus 26% of the excess of the amount over $60,000. |
| Over $80,000 but not
over $100,000 |
$18,200, plus 28% of the excess of the amount over $80,000. |
| Over $100,000 but not
over $150,000 |
$23,800, plus 30% of the excess of the amount over $100,000. |
| Over $150,000 but not
over $250,000 |
$38,800, plus 32% of the excess of the amount over $150,000. |
| Over $250,000 but not
over $500,000 |
$70,800, plus 34% of the excess of the amount over $250,000. |
| Over $500,000 |
$155,800, plus 35% of the excess of the amount over $500,000. |
The lifetime exemption amount for 2012 for gifts increased
to $5,120,000 with a maximum tax rate of 35% on gifts in excess
of that amount.
Generation-Skipping
Transfer Tax (2012)
The lifetime exemption amount is $5,120,000 with a maximum
tax rate of 35% on taxable transfers.
The 2010 Act increased the estate exemption amount (not subject to estate tax) to $5,000,000 for deaths occurring in 2011. Estates greater than $5,000,000 were subject to a maximum estate tax rate of 35% (see table above). All estate assets receive a full step up in basis. Form 706 U.S. Estate (and Generation-Skipping Transfer) Tax Return is due nine months after the decedent's death.
The lifetime exemption amount for 2011 gifts increased to
$5,000,000 with a maximum tax rate of 35% on gifts in excess of
that amount.
Generation-Skipping
Transfer Tax (2011)
The lifetime exemption amount for 2011 is $5,000,000 with a
maximum tax rate of 35% on taxable transfers.
Under the 2001 Act, there was zero estate tax, regardless of
the size of the estate, with a modified basis carryover system.
On December 17, 2010, the Tax Relief, Unemployment Insurance
Reauthorization, and Job Creation Act of 2010 became law. It
retroactively changed the estate tax for deaths in 2010. This
Act allowed Executors a choice between paying estate tax or electing out of estate law.
Because the law was not passed until after any filing
deadline for decedents dying in the first part of the year, the
filing deadline was extended to September 19,2011. If the
Executor filed an automatic extension for six months, the return
is due March 19, 2012.
Electing out of estate tax treatment: The Executor would follow a modified carryover basis system whereby $1.3 million in assets going to a non-spouse beneficiary would receive a date of death value and $3 million in assets going to a spouse beneficiary would receive a date of death value. The Executor will file Form 8939, which reports the basis of all assets as either the decedent's adjusted basis or at date of death values as limited above. Form 8939 is due January 17, 2012.
The lifetime exemption amount for gifts were limited to
$1,000,000 in 2010 with a maximum tax rate of 35%.
Generation-Skipping
Transfer Tax (2010)
Generation-skipping transfer tax was not applicable under
the 2001 Act. The 2010 Act increased the lifetime exemption
amount to $5,000,000 with a zero(0) tax rate for transfers in
2010.
Portability
(for 2011 and beyond)
Portability allows the transfer of any unused estate tax
exemption amount from the estate of the first spouse to die to
the estate of the survivor. The exemption amount passed from the
first decedent to the survivor is indexed for inflation, in
multiples of $10,000.
Portability must be elected by timely filing Form 706 even if the estate is not otherwise required to file. If the Executor wants to elect out of portability, he must do so proactively by not filing Form 706, if not required, by writing he is electing out across the top of the page 1 of Form 706 or by attaching statement electing out.
Relying on portability without the use of credit shelter
trusts may cause an estate plan to fail if the current law is
not extended.
An analysis must be done to ascertain if portability should
be elected which takes into account:
The
amount of the couples combined estates
The
amount of assets in each spouse's name
Potential appreciation in the survivor spouse's estate
Future
changes in the Estate tax law
Asset
protection (from creditors)
Basis
step-up in the survivor spouse's estate
The
potentially for the surviving spouse to re-marry (for instance,
the spouse of a terminally ill younger client may be likely to
re-marry)
A complete Form 706 must be filed to make the election, even
if it is not otherwise required, which causes additional expense
for the preparation of the form.
If portability is elected, the statute of limitations
continues on the estate of the first spouse to die until the
statute of limitations closes on the estate of the second spouse
to die. Adequate disclosure rules do not run the statute (as
pertaining to gifts made after 1997). This means the IRS can
audit the estate tax return of the first spouse to die until
barred by the second spouse's statute of limitations.
Portability, Gift Tax and Generation-Skipping Transfer Tax
Portability also applies to gift tax for 2011 and beyond.
However, portability does not apply to generation-skipping
transfer tax.
A credit against Federal Estate Tax which in effect allows
you to pass a certain amount of property free of the Federal
Estate Tax. The table below shows how much property you can pass
tax free if you die during the specified year:
| In the case of estates of decedents dying, and gifts made, during: |
The applicable exclusion amount is: |
| 1998 |
$625,000
|
| 1999 |
$650,000
|
| 2000 and 2001 |
$675,000
|
| 2002 and 2003 |
$1,000,000
|
| 2004 and 2005 |
$1,500,000
|
| 2006, 2007 and 2008 |
$2,000,000
|
| 2009 |
$3,500,000
|
| 2010 |
None |
| 2011 |
$5,000,000 |
| 2012 |
$5,120,000 |
| 2014 |
$5,250,000 |
| 2014 and beyond,
increased for inflation in multiples of $10,000 |
Generation Skipping Tax - How
It Works
A federal transfer tax imposed on property transfers which skip a generation. It is equal to the maximum estate tax payable if the property had been included in the skipped generation's estate.
For example, Grandma leaves $2,000,000 to a granddaughter.
Generation skipping tax would impose a 35% (or current maximum
estate rate) on the $2,000,000 as if it had been left to a
daughter first, incurred an estate tax of 35% and then left to
granddaughter.
Form 706 United States Estate (and Generation-Skipping Transfer) Tax Return
Tax return to calculate the Federal Estate Tax due as imposed by Chapter 11 of the Internal Revenue Code. You must file Form 706 for any gross estate plus adjusted taxable gifts and specific exemption over the applicable credit amount for that year.
For example, if the decedent's gross estate is over
$5,120,000 and the decedent died in 2012, the
Executor will be required to file Form 706 regardless of if tax
is due or not, on the 9th month anniversary of the death.
A document you write during your life to direct the distribution of your property after your death.
When you have written a will prior to your death.
When you die without having written a will.
If you die intestate, every state has written a “will” for you which specifies who gets your property. These laws are called intestacy laws and their purpose is to ensure the smooth transfer of property. Unfortunately, because the laws are necessarily very broad, they may neither distribute your property as you would wish nor allow for any tax savings (especially Federal Estate tax).
The process whereby the Probate Court supervises the administration of an Estate to ensure the orderly and correct transfer of property and to protect the rights of creditors.
Asset Transfer by Operation of the law
Some assets do not pass to heirs through probate but through a process called "operation of the law".
For example, life insurance, annuity and IRA proceeds are paid to the beneficiary the owner designated prior to death. A surviving owner of real estate or bank accounts owned with the decedent as joint-tenants-with-right-of-survival automatically becomes the sole owner of the property at the first owner's death.
A person cannot affect the disposition of these assets through her will at death (unless all named beneficiaries for life insurance, an annuity or an IRA predecease) and can only direct their ultimate disposition via the beneficiary designation or form of ownership.
Executor/trix, administrator/trix, personal representative
Titles of a person charged by the Probate Court with the responsibility of settling an estate.
Form 1041 U.S. Income Tax Return for Estate and Trusts
An income tax return for a trust or an estate.
Under Treasury Regulations SECTION 301.7701-4(a), a trust is defined as “...In general, the term "trust" as used in the Internal Revenue Code refers to an arrangement created either by a will or by an inter vivos declaration whereby trustees take title to property for the purpose of protecting or conserving it for the beneficiaries under the ordinary rules applied in chancery or probate courts.”
For example, if you set up an inter vivos (or living) trust and put all your assets in the Trust, the Trustee would hold title to and manage the assets in accordance with the directions you give in your Trust for whomever you decide should be the beneficiary(ies) which can include yourself.
A case and statutory law that a trustee may invest trust
funds in any way that a "prudent man" would invest the money of
another person.
Under NH RSA 564-B:9-901, a trustee may invest funds in any
way that a "prudent investor" would invest the money of another
person.
A prudent investor considers "...purposes, terms,
distribution requirements, and other circumstances of the trust.
In satisfying this standard, the trustee shall exercise
reasonable care, skill, and caution. "The prudent investor would
evaluate investment decisions"...in the context of the trust
portfolio as a whole and as a part of an overall investment
strategy having risk and return objectives reasonably suited to
the trust."
A trust accounting concept that splits the interest in a trust between beneficiaries who may receive the income earned by the trust and the beneficiaries who ultimately receive the underlying assets (principal) which produce the income.
The beneficiaries who receive the principal (the assets of
the trust) after a specified period or event such as the death
of the income beneficiary.
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