Skip to main content
Tag

estate tax

Dec 30
Love0

2022 Estate Tax and Gift Update Federal and State

By Uncategorized

Federal Estate Tax Amount for 2022

The IRS released Revenue Procedure 2021-45 which announces the increase in 2022 of the estate, gift and generation-skipping transfer tax applicable exclusion amounts from $11.7 million to $12.06 million. The applicable exclusion amounts currently remain scheduled to expire on December 31, 2025, which would result in a reduction in the exclusion amounts to $5 million (adjusted for inflation). However, there is always a possibility that new law will be passed that could adjust these exclusion amounts sooner.

Federal Gift Tax Exclusion for 2022

In addition, in 2022, the gift tax annual exclusion amount for gifts to any person (other than gifts of future interests to trusts) will increase to $16,000, while the gift tax annual exclusion amount for gifts to a non-citizen spouse will increase to $164,000.

Rhode Island Estate Tax Update for 2022

Because of an inflation adjustment prescribed by statute, the Rhode Island estate tax credit amount will be $74,300 for decedents dying on or after January 1, 2022, up from the current credit amount of $70,490 (which applies for decedents dying in calendar year 2021).

As a result, the Rhode Island estate tax threshold will be $1,648,611 for decedents dying on or after January 1, 2022, up from the current threshold of $1,595,156 (which applies for decedents dying in calendar year 2021).

Thus, in general, for a decedent dying in 2022, a net taxable estate valued at $1,648,611 or less will not be subject to Rhode Island’s estate tax. Due to the inflation adjustment, fewer estates will be
subject to Rhode Island’s estate tax in 2022. (In certain circumstances, the Rhode Island estate tax will not apply regardless of the estate’s size: Rhode Island General Laws Chapter 44-22 provides full details on the computation of the tax, including such factors as the marital and charitable deductions.)

◼ ESTATE TAX – NEW FORM
A new Rhode Island estate tax form will be used starting January 1, 2022. It’s Form RI706. Form RI-706 will replace Form RI-100A and Form RI-100 for all Rhode Island estate
tax filings.

Until January 1, 2022, there are two main estate tax forms: Form RI-100 (typically used for estates that are not over the applicable estate tax threshold) or Form RI-100A (typically used for estates that are over the applicable estate tax threshold).

Effective January 1, 2022, Form RI-706 becomes the main estate tax form, essentially combining Form RI-100 and Form RI-100A into one unit. Each estate valued at more
than $1.3 million must complete the entire Form RI-706. Each estate valued at below $1.3 million are only required to complete portions of pages 1 through 4 of the form.

▪ On and after January 1, 2022, use Form RI-706 for all estates with a date of death on or after January 1, 2015.

▪ Before January 1, 2022, use Form RI-100A or Form RI-100 (whichever applies) for estates with a date of death on or after January 1, 2015.

▪ The $50 filing fee still applies for each estate return filed on or after January 1, 2022, including those returns filed for estate tax lien release.

▪ All other estate tax forms (including the extension form, lien release form, and payment voucher) remain the same.

Jun 15
Love0

A Brief History on Estate Taxation

By Uncategorized

The First Tax

Levies on the post-mortem transfer of property originated in Egypt around 700 BC, according to a IRS history They were later imposed, around the time of Christ, by the Roman emperor Caesar Augustus, and then by feudal lords in Europe. America’s first death tax—that’s what it was officially called—was imposed as part of the Stamp Act of 1797 to cover the cost of US military skirmishes with France. The federal government charged 25 cents on postmortem bequests of $50 to $100, 50 cents on $100 to $500, and $1 on each additional $500.

Congress enacted a second round of death taxes in the Revenue Act of 1862 to raise funds for the Union to fight the Civil War. Lawmakers did so again in 1898 to bankroll the Spanish-American War. These taxes were not burdensome. In the latter case, if a wealthy man left behind $10 million—a staggering fortune—to a sibling, child, or grandchild, his estate owed the government just over 2 percent, about $219,000. All three taxes were repealed after the hostilities ceased.

By the late 1800s, however, America was transitioning rapidly from an agrarian economy to an industrial one. The old federal patchwork of tariffs and property taxes was leaving the fortunes of Gilded Age industrialists like Andrew Carnegie and John D. Rockefeller largely untouched. Reformers began calling upon the government to tax these “robber barons,” while the businessmen, as today, countered that such a move would stifle growth and quash innovation. The Revenue Act of 1916, in anticipation of the coming war effort, levied a tax of up to 10 percent on inheritances of $50,000 or more (about $1.1 million today); the levy was increased to 25 percent the following year, although it was later repealed. But Rockefeller never paid a penny. He just signed his fortune over to his son before he died, because Congress hadn’t yet passed a gift tax.

Modern Day

It wasn’t until 1976, after another six decades of tweaks, that Congress finally put in place a comprehensive, integrated gift-and-estate tax similar to what we have today. But the endless squabbling over the estate tax, which was expected to bring in just $16 billion last year, continues to this day.

Do you or a loved one need to discuss the impact estate taxes may have on your Estate? Call us for a no-obligation consultation.

Feb 14
Love0

How Can I reduce Capital Gains Taxes?

By Uncategorized

Consider Transferring Highly Appreciated Assets to a Parent

If property is held by someone at their death, the “basis” in the property used by the seller to determine taxable gain on its sale is re-set to the fair market value at the date of death.

Income and capital gains tax rates have increased over the last 10 years, and during that time the exemption to avoid estate tax has increased dramatically. This combination (which did not generally exist before now) creates a tremendous opportunity to reduce income tax on property sales. There are many ways to do this. One simple technique is to transfer a highly appreciated asset to a parent. When Mom or Dad passes away, the basis in the asset is increased to its fair market value at the date of death (even though there is no estate tax), which can eliminate income tax on the gain on a sale thereafter, or permit much greater depreciation deductions when re-acquired by the owner.

So for example, if basis is stepped up by $1,000,000, then the tax on sale of the asset will be reduced, which tax savings could easily be $300,000. Note this is an after-tax savings!

There are related issues that should be addressed to protect the asset, account for timing and further enhance the tax benefits.

Apr 01
Love0

Estate Plans With Income Tax Strategies

By Uncategorized

Today, you generally do not need to be concerned about federal estate taxes unless your net worth approaches $5 million (about $10 million if you are married). For 2016, the federal estate tax exemption is $5.45million per taxpayer and the exemption is scheduled to be annually adjusted for inflation. The exemption is the amount, reduced by any taxable gifts you made during life, which can pass tax-free to your heirs upon your death.

As the higher, inflation-indexed estate tax exemption was permanently signed into law, the top ordinary income and long-term capital gains rates increased approximately five percentage points each, to 39.6% and 20%, respectively. In 2013, the 3.8% net investment income tax went into effect for higher-income taxpayers and at thresholds lower than those triggering the top income tax rates.

So, for higher-income taxpayers and people with higher-income heirs, income taxes are important to plan for. However, even middle-bracket taxpayers should factor income taxes into their estate planning to minimize tax liability for themselves and their heirs. After all, why pay, say, even a 15% federal tax on a capital gain if, with careful planning, your family could avoid incurring any federal taxes on that gain?estate-tax-return.ashx_

Two Valuable Income Tax Strategies
Several income-tax-saving strategies can be incorporated into an estate plan. However, the following are two of the most valuable that most taxpayers can take advantage of:

  1. Hold on to appreciated assets — unless you have loved ones eligible for the 0% rate. Inherited assets receive a step-up in basis to their fair market value on the owner’s date of death. The recipient can then sell the appreciated assets shortly after receiving them and owe little, if any, income tax on the sale. So, if estate taxes are not a concern, holding on to both assets that have already appreciated and assets that you expect to appreciate significantly in the future can be beneficial. However, if you would like to dispose of an appreciated asset and you have loved ones in the 10% or 15% bracket for ordinary-income taxes who thus are eligible for the 0% rate on long-term capital gains, consider gifting it to the loved one to sell. This might require a gift tax return to be filed.
  2. Make charitable donations during life. If you are charitably inclined, consider maximizing your lifetime donations rather than waiting to make large charitable bequests at your death. Properly substantiated lifetime gifts to qualified charities generally provide an income tax deduction (and reduce the value of your estate), while charitable bequests provide only an estate tax deduction, which you will not need if your estate is below the exemption amount.

Before making significant charitable gifts, be sure to consider your cash flow needs and the legacy you want to leave. Also, keep in mind that your annual income tax deduction for charitable donations is limited to a percentage of your adjusted gross income (AGI) — 50%, 30% or 20%, depending on the type of gift and charity. Contributions exceeding the applicable AGI limit can be carried forward for up to five years.

Stay AlertIRSbuilding_0
As you consider — and perhaps implement — these income-tax-savings strategies for your estate plan, you also need to keep an eye on two things: 1) Your net worth, and 2) Congress. If you have a financial windfall or simply enjoy a steady increase in compensation or investment performance, your estate could be boosted to a size where federal estate taxes become a concern. And, while the high, inflation-adjusted estate tax exemption has no expiration date, Congress could pass legislation to reduce it at any time.

Medicaid Planning Issues

Obviously, the above items do not work in the context of Medicaid Planning. Gifting of assets, holding onto appreciated assets work for estate planning strategies and tax strategies – but not for Medicaid Planning strategies. While an Irrevocable Income Only Grantor trust does allow for tax basis planning opportunities, charitable gifting during lifetime and within 5 years of applying for Medicaid will be a disqualifying transfer of assets.

Whatever happens, be ready to revisit your estate plan and, if necessary, alter your strategies based on changing circumstances. Be sure to consult with appropriate financial, tax and legal professionals. Want to discuss your plans?  Contact us to schedule an appointment.

MJL Blog Footnote

 

Mar 22
Love0

Estate Executor Not Liable For Unpaid Taxes

By Uncategorized

Executor Faced With A Tax Bill Without Any Funds To Pay It

NEWS FLASH:  Executor of an estate was subject to federal estate tax, but didn’t have enough assets to pay the tax. (Many of the estate assets were not probate property, such as joint accounts owned with persons other than the decedent’s spouse.) The estate tax return (Form 706 was filed, but the estate tax wasn’t paid.

To satisfy the estate tax, the executor obtained a restraining order over jointly-owned accounts and sought contributiestate-taxons from estate beneficiaries. Eventually, contributions from two beneficiaries and funds from the joint accounts were received and then used to pay federal and state estate taxes and an amount distributable to a beneficiary.

The IRS issued a notice of fiduciary liability to the executor, saying he was liable under IRC Sec. 6901 for the amounts distributed to the state and the beneficiary. The Tax Court disagreed, determining that because the estate wasn’t insolvent at the time of the distributions, the executor wasn’t personally liable for the federal tax deficiency. Scott Singer, TC Memo 2016-48 (Tax Ct.).

Concerned about the impact of taxes on your estate plan? Contact out office to discuss your options!

Close Menu