Slides Lesson 21

7/28/2019 Slides Lesson 21

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This is the final video in the Estate Planning Lesson. We will wrap up this lesson with a

discussion of Estate Taxes and Gifting.

Much as we did with income taxes, we will go through how estate taxes are structured and

how gifting is interrelated with estate taxes.



The United States government has determined that taxing gifts (the transfer of wealth

between citizens) is socially responsible. The taxing of gifts and inheritance is based on an

integrated system.

The three most important exceptions are gifts to spouses, the Annual Gift Exclusion, and

the Lifetime

Taxable

Gift

exclusion.



The Annual Gift Tax exclusion for 2013 is $14,000. This means that in 2013 you could give

$14,000 to each of your children without paying a penny in federal gift taxes. Your spouse

could do the same thing.

The gift must be a present gift. That means the recipient must have unfettered access to

the value

of

the

gift.

In

other

words

it

cannot

be

conditioned

on

“I

give

you

this

and

you

do

that with it.”

Generally the gift cannot be placed in a Trust. It can be conditioned such that the recipient

only has unfettered access for some reasonable period of time before it goes into trust.

Gifts to minors under the Uniformed Gift to Minors Act (UGMA or UTMA) can be in a trust

and still be considered a gift.

Gifts to 529 College savings plans are allowed.



The life time gift exclusion is not really a tax exclusion, it’s more of a tax deferral. Gifts that

are not eligible for the annual gift tax exclusion, and/or amounts in excess of the annual

exclusion, are required to be reported on a Gift Return with the IRS.

All such gifts will be integrated into the person’s estate taxes. Under the exclusion, taxes on

accumulated gifts

up

to

the

lifetime

exclusionary

amount

will

not

be

taxed

until

death.

Once the exclusion is exceeded, gift taxes will be due in the year of the gift.



Let’s now examine Estate Taxes.

Much like income taxes, which start with the broadest definition of income, estate taxes

start with the broadest statement of the estate value.

The gross

estate

includes

everything

in

which

the

decedent

has

ownership.

Thought

of

another way, it’s everything that they controlled sufficiently on the day before their death

that they could have given to someone.

Thus, life insurance is included because they could have changed the beneficiary. Likewise,

if they are the settlor of a revocable trust they could have changed the Trust.



The gross estate gets adjusted for debts owed and for the bills that come due after the

person’s actual death

Gross estate minus debts owed minus final expenses minus expenses to prepare for estate

taxation equals adjusted

gross

estate



The Adjusted Gross estate is reduced by the available deductions.

A married decedent can pass an unlimited portion of their estate to their spouse with no

estate taxes. If an inheritance goes to charity it also reduces the value of the estate. This

could be in the form of an outright gift or as part of a trust that somehow benefits charity.

Deductions include: Marital Deductions and charitable deductions



All previous taxable gifts are added into the taxable estate to determine the basis for taxing

the estate.

The Estate tax tables are progressive much like income tax rates ‐‐ only more aggressive.



Similar to income taxes, Estate Taxes have credits in addition to deductions. The credits for

Estate Tax exclusion deserve some special discussion.

When calculating estate taxes, you still get the benefit of reducing your federal estate tax

with credit for any gift taxes that have already been paid, state estate taxes paid, and credit

for your

estate

tax

exclusion.

All of this will help you arrive at the estate taxes you owe. If this stuff seems confusing, this

is all the more reason to find a reputable estate planning attorney who can help you make

sure your heirs aren’t stuck with pain and an unnecessary tax bill resulting in money going

to taxes when it could go to your heirs!

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Slides Lesson 21