By Heidi C. Freeman, J.D. | Volume 2, Issue 1 (January 2014) The American Taxpayer Relief Act of 2012 (actually passed on January 1, 2013), permanently increased the gift, estate and generation-skipping transfer tax exemptions to $5 million per person. In 2014, adjusted for inflation, the amount is actually $5.34 million per person ($10.68 million for a married couple). Due to the increased exemption amounts and the addition of portability, significantly fewer clients are in need of transfer tax planning. This article provides ten reasons why clients who do not have a transfer tax concern still have compelling estate planning…
2013 Year-End Tax Planning Ideas (Part 3)
By Robert S. Keebler, CPA, MST, AEP (Distinguished) As we near the end of 2013, year-end tax planning again takes center stage. In the last two newsletters we covered two of the most important year-end planning strategies in detail—loss harvesting and Roth IRA conversions. In this newsletter we summarize a number of other strategies that may produce substantial tax savings. Making Trust Distributions The tax brackets for trusts are much more compressed than the tax brackets for individuals. Trusts begin being taxed at the top rate of 39.6% when income rises above $11,950. By contrast, individuals filing joint returns don’t…
Top Ten Reasons to Decant an Irrevocable Trust
By Steven J. Oshins, J.D., AEP (Distinguished) Trust decanting is the act of distributing assets from one trust to a new trust with different terms. Just as one can decant wine by pouring it from its original bottle into a new bottle, leaving the unwanted sediment in the original bottle, one can pour the assets from one trust into a new trust, leaving the unwanted terms in the original trust. For many years, practitioners have struggled to find ways to change the terms of an irrevocable trust. However, through common law and through the decanting statutes that have been enacted…
Estate Planning for Same-Sex Couples
By Alma Soongi Beck, J.D., LL.M. (Taxation), California State Bar Certified Specialist in Estate Planning, Trust & Probate Law After the historic rulings in United States v. Windsor and Rev. Ruling 2013-17, the playing field for same-sex couples has equalized dramatically. When married, same-sex couples are finally eligible for the same kinds of planning benefits that practitioners have leveraged with opposite sex married couples for years: Bypass trust planning, gift splitting, leveraging of the double step-up in basis for community property, joint tax return filings, among others. Moreover, under Rev. Ruling 2013-17, federal tax recognition now applies regardless of where the…
Sell More Life Insurance by Showing Prospects How to Avoid Income Tax
By Philip J. Kavesh, CFP®, ChFC, J.D., LL.M. (Taxation) The 2012 American Taxpayer Relief Act (“ATRA”) may have reduced the need for life insurance in estate tax planning, but it has opened numerous opportunities to utilize life insurance as an income tax planning tool. A big concern for taxpayers who may want to sell their home, stocks, rental property or business is the huge jump in capital gains taxes. The top federal rate bracket has moved from 15% to 20%, but when you add in the combined effect of the 3.8% Net Investment Income (“Obamacare”) Surtax, the itemized deduction phaseout or…
Year-End Roth Conversion Planning
By Robert S. Keebler, CPA, MST, AEP (Distinguished) Roth IRA conversions are an important part of bracket management and can be used to avoid the 3.8% net investment income tax (NIIT) and the higher income tax brackets. While some of the benefits of Roth IRA conversions may require a longer period of time to produce, these conversions are still an important strategy to consider at year-end. Advantages of a Roth IRA Roth IRAs have a number of advantages over traditional IRAs: Lower overall taxable income long-term; Tax-free, rather than tax-deferred growth; No required minimum distributions (RMDs) at age 70½;…
8 Year-End Practice Building Tips to Implement RIGHT NOW
By Philip J. Kavesh, J.D., LL.M. (Taxation), CFP®, ChFC, California State Bar Certified Specialist in Estate Planning, Trust & Probate Law As your business winds down near year-end (unlike 2012, when everyone was doing last-minute wealth transfer planning because of anticipated changes in the estate tax laws), it’s a good time to work on your business – – rather than in your business, as we practitioners are often trapped doing throughout the year. Hopefully, this article will serve as a brief checklist of action steps you can take now to assure a more effective, profitable and enjoyable 2014. By the way, this…
It’s Raining Cats and Dogs (and Llamas and Birds and Horses)
By Eden Rose Brown, Esq. The statistics are compelling: Over 90 million American households own companion animals – a total of more than 218 million pets of all shapes and sizes! These pet owners spend an average of $500 on each pet, totaling more than $12 billion annually, and that does not include toys, grooming and food. Of these pet owners, over 63% say that they consider their pets to be family members and 79% allow their pets to sleep with them. The strength of the human-animal bond is powerful. Through the years I have found that…
The Dynasty Trust: Jurisdictional Choices
By Steven J. Oshins, J.D., AEP (Distinguished) Most trusts are designed as Staggered Distribution Trusts which are trusts that make mandatory distributions to the beneficiaries upon reaching certain ages. For example, many trusts pay out one-third of the assets upon the beneficiary reaching age 25, one-half of the balance upon the beneficiary reaching age 30 and the balance upon the beneficiary reaching age 35. The philosophy used by the scriveners of these types of trusts is that the beneficiaries have multiple opportunities to learn from their mistakes. Those who recommend Staggered Distribution Trusts fail to properly consider the estate tax…
Year-End Gain Harvesting May Create Impressive Tax Savings, But Be Careful!
By Robert S. Keebler, CPA, MST, AEP (Distinguished) Bracket management has always been an important part of income tax planning. As we noted in our May newsletter, however, the 3.8% Medicare Surtax and higher tax rates make it even more important in 2013. We listed the following strategies that taxpayers can use to avoid the surtax and stay out of the higher tax brackets: (1) Income smoothing CRTs; (2) income shifting CRTs; (3) using NIMCRUTS as a substitute for or supplement to a retirement plan; (4) CLATs; (5) Life Insurance; (6) deferred annuities; (7) installment sales; (8) managing IRA distributions;…