slides lesson 21
TRANSCRIPT
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.
7/28/2019 Slides Lesson 21
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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.
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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.
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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.
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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.
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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
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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
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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.
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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!