Matlin Law Group, p.c.     |   500 Skokie Blvd. Suite 100     |   Northbrook, IL 60062       |     Phone:   1-847-770-6600  

Estate Tax Basics

Glenview Estate Tax Attorney

Chicago Estate Planning

Estate Tax Considerations

As with retirement planning, creating an estate plan without considering tax issues in the process can undermine even the very best efforts. At Matlin & Associates, P.C., we understand how the estate tax works and how to help people minimize or avoid its impact on them altogether.

An Estate Tax Primer

The threshold for federal transfer tax is $5 million per person also known as the “applicable exclusion amount.” Because of a weird “Sunset” law hiccup, there is a chance that in 2013 the $5 million bar will drop to $1 million, so for the sake of due diligence various scenarios are examined.

For now, there is a unified transfer tax for lifetime gifts, estates and generation skipping that kicks in at $5 million per person.

Tax on Lifetime Gifts

You can make gifts of $5 million during your lifetime without a transfer tax. Beyond that amount, lifetime gifts to charity and between U.S. citizen spouses of opposite gender are limitless. The $5 million limit is also in addition to the $13,000 you can gift any person every year.

Gifts greater than $13,000 in a year to any non-spouse of the same gender must be reported. The U.S. government, for tax purposes, does not recognize marriage between people of the same gender, though the future of the Defense of Marriage Act (DOMA) is in doubt since the Obama administration announced it woud not contest its constitutionality. Eventually, DOMA's constitutionality will be decided by the U.S. Supreme Court, and it it is ruled to be unconstitutional, gay and lesbian marriages that are recognized on the state level will be given "full faith and credit" by the U.S. government for all purposes, inluding tax.

Gifts greater than $136,000 in any year to a non-citizen spouse must also be reported.

The amounts reported to the IRS in an informational gift tax return are subtracted from the applicable exclusion left at your death that is not subject to estate tax.

Lifetime gifts over $5 million owe a gift tax of 35% the following April 15 unless the gift is to a spouse of the opposite gender or to charity. The unlimited marital deduction allows for gifts to a federally-recognized spouse of any amount, billions even. In 2013, the lifetime gift exemption is scheduled to reset to $1 million per person.

  • Post-2012 Caveat: On January 1, 2013, the $5 million lifetime federal gift exemption will drop to $1 million under the current schedule, with a top rate of 55%, plus a urtax of 5% on estate valued between $10million and $17.184 million.

Estate Tax on Gifts at Death

When you die, your estate up to $5 million, minus any reportable gifts during your lifetime, passes to your beneficiaries free from federal estate tax. If you have an estate tax, the highest rate is 35%. As with lifetime gifts, you can pass unlimited value, billions even, to charities and/or to a spouse who is both a citizen and not of the same gender.

  • Post-2012 Caveat: On January 1, 2013, the $5 million federal applicable exclusion amount will drop to $1 million under the current schedule, with a top rate of 55%. Generation Skipping Tax.

If you wish to take a long view of your wealth, you may consider generation-skipping. When it comes to transfer taxes, the government wants to collect at every generation. Gifts of greater than $5 million to non-spouse family members who are two or more generations below you or who are not related but more than 37 ½ years younger, during lifetime or at death, face a punitive generation-skipping tax. The generation-skipping tax is assessed at the highest rate, 35%, and is applied after any regular transfer tax is assessed.

For those who wish to do heavy-duty estate tax planning, generation skipping trusts can protect assets generationally, pushing them into the future.

  • Post-2012 Caveat: On January 1, 2013, the $5 million federal exclusion on generation skipping taxes will drop to $1 million under the current schedule, with a top rate of 55%.

The Applicable Exclusion Amount Shelter Trust

  • Annual gifting of up to $13,000 per year, per person
  • Charitable donations
  • Charitable trusts
  • Family limited partnerships
  • Irrevocable insurance trusts
  • Qualified personal residence trusts

Tax-minimizing techniques can be very sophisticated, but well worth the time, effort and money spent on attorneys and accountants.

All information provided in this site is of a general nature and is not intended, nor should it be construed, as legal advice. You should not act or rely upon the information herein without professional advice after a thorough examination of the facts of each situation. Although we strive to provide accurate, up to date information, there is no guarantee that it is accurate on the date it is received or that it will continue to be accurate.