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Estate
taxes are imposed by a state or the federal government on the transfer
of a person's assets to his or her heirs after death.
Federal Estate Taxes
If
your estate has a gross value equal to or less than the statutory
exemption (currently $3.5 million for 2009), there will be no federal
estate tax to pay regardless of who receives your assets, unless you
made large gifts during your lifetime. In addition, all property
passing to your spouse is free from any federal estate tax, regardless
of the amount.
District of Columbia Estate Tax
If
you are a resident of the District of Columbia and the value of your
estate is $1,000,000 or more, or if you are a nonresident who owns real
estate and/or tangible personal property located in the District of
Columbia and your estate is valued at $1,000,000 or more, then your
estate may owe the District of Columbia estate tax.
Maryland State Estate Tax
The
Maryland estate tax is imposed on the transfer of property in your
estate. Currently, a Maryland estate tax return must be filed if your
federal gross estate, plus adjusted taxable gifts, is $1,000,000 or
greater, and you were either a resident of Maryland at the time of
death or a nonresident who owned real or tangible personal property in
Maryland. The tax rate is currently limited to 16 percent of the amount
that the estate value exceeds $1,000,000.
Maryland Inheritance Tax
If
you are a Maryland resident and your estate is passing to someone other
than your immediate family, or if you are a nonresident who owns real
estate and/or tangible personal property located in Maryland and it is
not passing to your immediate family, then your beneficiaries may owe a
Maryland inheritance tax.
Gift Taxes
The
Internal Revenue Code allows gifts of this amount to be made without
the imposition of estate or gift taxes. You can make gifts of $13,000
per year per recipient. If your spouse joins in the gift, the annual
exemption amount per recipient is increased to $26,000. Over time,
these gifts can add up and may substantially reduce your estate and
your estate’s tax.
Other Taxes
Be
sure to ask your attorney about other taxes such as the generation
skipping transfer tax, where transfers by Will or gifts to relatives
who are two or more generations below you may trigger an additional
tax.
Avoiding Estate Taxes.
If
your estate will be subject to the federal estate tax, proper estate
planning with an attorney can lessen or completely defeat estate taxes.
Such techniques are allowable under the U.S. Internal Revenue Code and
state law.
PROBLEM:
Jack and Mary have assets of exactly $4 million. Jack passes away, and
all assets pass along to Mary with no estate taxes owed because of the
spousal exemption. Several years later, Mary passes away. The unified
credit is used, and so $2 million passes along to the children, estate
tax free. Estate tax is owed on the next $2 million, resulting in a
$900,000 estate tax bill.
SOLUTION:
With proper estate planning, this estate could have paid nothing. All
estate taxes could easily have been avoided by setting up a Revocable
Living Trust that had a Marital and Family Trust provision, also known
as an A/B trust.
Here's
how it works: When Jack dies, half of the assets are placed in the
Family Trust, or B Trust. Jack's unified credit would be applied to
these assets, and no estate tax would be due. Mary is allowed to draw
income from assets in the B Trust, and allowed to access principal if
necessary. The other half of the assets are placed into the Marital
Trust, or A Trust. Mary retains full control and unlimited access to
assets in the A trust. Upon Mary's death, her unified credit is applied
to the estate tax assessed upon her assets in the A Trust, and her $2
million passes along, estate tax free. Using this type of estate
planning, Jack and Mary were able to avoid paying $900,000 in estate
taxes.
An
additional benefit of the B Trust. Since the estate tax calculation was
applied upon the funding of the trust, the assets in the B trust will
not have another estate tax assessment, even if the assets grow in the
future. So, assume the $2 million in the B trust was never used by
Mary, and years later, those assets had grown to $3 million. Upon
Mary's death, the $3 million in the B trust passes free of estate tax,
in addition to Mary's $2 million.
If
no estate planning had been done, Mary's $5 million estate would owe
over $1.25 million in estate taxes.
Proper
estate planning pays off. Attorney's fees are very small in comparison
to the amount of estate tax your estate may owe.
Our Tax Planning Strategies
Our
tax plannnig strategies may include:
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Reduction of estate taxes
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Life Insurance Trusts
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Qualified Personal Residence Trust
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Grantor Retained Annuity Trust
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Retained Unitrust
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Asset Protection Trusts
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Land Trusts
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Dynasty Trust (Protection against the generation-skipping transfer tax)
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Family Limited Partnerships
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Asset Gifting
To
learn more about how we can help you, please feel free to explore this
website and our blog.
Use the "Contact Us" link above to send us any questions you may have
or to
make an appointment.
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