Kansas and Missouri Estate Planning

What is the Latest on the Maryland Estate Tax?

Maryland recently introduced new estate tax legislation.

Do you live in Maryland or have a family member living there?

Perhaps you are planning a move to this state in the near future.

You will want to make yourself aware of the estate tax laws of Maryland either way.

According to a recent LegiScan article titled“MD HB308,” Maryland recently updated its tax law.

The results?

The estate tax exclusion for the state is $5 million per person starting January 1, 2026.

This amount will be indexed for inflation, but it does carry an option for portability.

What does this mean?

The executor of the estate can make an election so any of the exempt amount not used by the deceased spouse with be added to the exemption available to the widow or widower.

Are any other tax laws changed?

The maximum estate tax rate will remain at 16 percent, and the inheritance tax will also remain the same.

The surviving spouse and children are exempt from an inheritance tax.

The maximum Maryland estate tax rate of 16% is not altered with the new legislation.

What if you die in 2018?

The exclusion amount is $4 million, not indexed for inflation.

Portability would also not be an option.

Regardless your state of residence, an experienced estate planning attorney admitted to practice there will be able to explain and plan for the tax laws applicable to your estate.

Remember: “An ounce of prevention is worth a pound of cure.” When making your financial, tax and estate plans, do not go it alone. Be sure to engage competent professional counsel.

For more information about estate planning in Overland Park, KS (and throughout the rest of Kansas and Missouri), visit our estate planning website and be sure to subscribe to our complimentary estate planning e-newsletter while you are there.

Reference: LegiScan (April 5, 2018) “MD HB308”

Why Should I Have My Estate Plan Reviewed Now?

The tax laws may change your estate planning strategy.

Taxes impact financial decisions.

When tax laws change, you often need to reevaluate your goals and strategies.

According to a recent Forbes article titled “Trusts In The Age Of Trump: Time To Re-Engineer Your Estate Plan,” this includes your estate planning.

How do the new tax laws influence estate planning?

The federal tax laws now allow for a higher federal estate tax exemption.

What is it?

The exemption is now just north of $11 million per individual when passed to children or non-charitable heirs.

This means the assets will pass without estate or federal gift taxes.

If you are married you could combine your exemptions and transfer just north of $22 million free of federal estate taxes.

By transferring the assets into a dynasty trust, your wealth could grow and pass to unlimited generations in the future without being subject to estate taxes.

If your state has an estate tax or inheritance tax below the federal threshold, you will need to consider this in your planning.

Otherwise, you could owe your state government a sizeable bill.

You will want to avoid leaving a trust with the exemption amount to children and the rest to your spouse.

Why?

This could disinherit your wife and allow your children to receive everything.

The new tax laws now allow for "portability" of the federal estate tax exemption between spouses.

What does this mean?

This means that whatever exemption amount unused by the first spouse to die will pass to the widow or widower.

However, this is not automatic.

The executor must file a tax return electing portability for this to happen.

Are you concerned about capital gains taxes?

If yes, then you may want to skip using a traditional credit shelter trust with assets like collectibles, stocks, mutual funds or real estate.

Why?

When you die, these assets will receive a step-up in basis at your passing to their current value.

This means heirs can sell these inherited assets immediately and would not owe a capital gains tax.

If you leave these assets directly to your spouse, he or she can receive a step-up in basis at your death and the assets will get another step-up when he or she dies.

If you leave them through a shelter trust, the assets will only receive a step-up in basis at your passing.

Trusts are complex estate planning tools.

They have their purposes, but you want to be sure the possible purposes fit your needs.

Work with an experienced estate planning attorney to create or revisit your plan to meet your goals.

Remember: “An ounce of prevention is worth a pound of cure.” When making your financial, tax and estate plans, do not go it alone. Be sure to engage competent professional counsel.

For more information about estate planning in Overland Park, KS (and throughout the rest of Kansas and Missouri), visit our estate planning website and be sure to subscribe to our complimentary estate planning e-newsletter while you are there.

Reference: Forbes (February 13, 2018) “Trusts In The Age Of Trump: Time To Re-Engineer Your Estate Plan”

Is there Estate Tax Relief for Widows?

There may be more grace for "portability" elections.

Losing a spouse changes everything.

In the midst of the losing your best friend, you often have other administrative duties to settle his or her affairs.

Especially if you are above the estate tax threshold.

According to a recent Forbes article titled “IRS Offers Estate Tax Relief To Widows And Widowers,” one of the most important actions to take involves the "deceased spousal unused exclusion amount (DSUE)".

What is the DSUE, otherwise known as the "portability" election?

DSUE planning is for those married couples who have estates that may be subject to estate taxes if the federal estate tax exemptions of both spouse's are not used.

Set in 2010, it provided for use of both the unified credit and the unlimited marital deduction.

What are these?

The unified credit protects a certain amount from estate taxes.

In 2017, this amount is $5.49 million for an individual.

The unlimited marital deduction allows for money left to the surviving spouse to be free from the estate tax.

The DSUE was particularly helpful in diminishing the need for certain couples to create trusts to protect their money from the estate tax.

A provision to know is Revenue Procedure 2017-34.

What does this do?

If the decedent died after December 31, 2010 and no estate tax return was filed or required, the executor can file a return with the portability election and take advantage of the estate tax relief.

In this filing the executor must reference the revenue procedure at the top of the first page.

This procedure is available until January 2, 2018.

After this date, the time limit is up to two years after the death of the first spouse to pass on.

Filing forms may seem like a headache, but a small headache may be worth it if you could potentially die with a net worth exceeding the exclusion amount.

Estate planning should not be taken lightly.

Work with an experienced estate planning attorney to determine if this is appropriate for your situation. 

Reference: Forbes (June 12, 2017) “IRS Offers Estate Tax Relief To Widows And Widowers”

Who is Responsible for Filing Portability?

An administrator of the estate must fulfill his or her duties.

Do these duties include filing for portability?

Are you the administrator of an estate?

Did the decedent have a surviving spouse?

According to a recent Justia article titled “In the matter of Estate of Vose,” 390 P.3d 238 (Okla. 2017), you are responsible for filing for portability for the surviving spouse.

This recently came into question in an Oklahoma case.

What happened?

The spouse of a decedent asked for an order from a trial court to make the administrator file for benefits from the portability election.

The court complied and gave an order for the administrator to file a federal estate tax return and elect portability of the Deceased Spousal Unused Exclusion (DSUE) according to federal estate and gift tax laws.

The administrator appealed.

Why?

He claimed the widow had no right to the portability benefit under the terms of a premarital agreement she had signed.

The State Supreme Court upheld the order of the trial court.

The reasoning?

The portability rule allowing a surviving spouse to retain the unused estate and gift tax exemption has been in place since 2010.

The premarital agreement was signed in 2006.

Also, 26 U.S.C.A. § 2010 requires the administrator to make the election to allow portability of the DSUE for a surviving spouse and to act in the interest of the estate.

As a result, the court decided the portability was outside the scope of the premarital agreement.

What happens of the election is not made within the specified time limit?

The portability election is lost.

By the way, the administrator was her stepson and the son of the decedent.

Remember: “An ounce of prevention is worth a pound of cure.” When making your financial, tax and estate plans, do not go it alone. Be sure to engage competent professional counsel.

For more information about estate planning in Overland Park, KS (and throughout the rest of Kansas and Missouri), visit our estate planning website and be sure to subscribe to our complimentary estate planning e-newsletter while you are there.

Reference: Justia (January 17, 2017) “In the matter of Estate of Vose”

Can Life Insurance be Inherited Tax-Free?

Taxes on inheritances are affected by how the asset is inherited.

You were named as a life insurance beneficiary.

But you are not quite sure what this means.

Do you have to pay tax?

Or is it exempt?

Good question.

A recent NJ.com post, titled “Is inheritance tax owed on life insurance?,” addressed this very question.

Where do you begin?

First, you need to know the tax rules for your state.

For example, those in New Jersey could potentially face the state estate tax, the state inheritance tax, and the federal estate tax.

Federally, the estate tax exemption is $5.49 million.

With "portability" this would be more.

What is portability?

Portability is when the surviving spouse can add the remaining exemption of his or her last deceased spouse to his or her own federal estate tax exemption.

What does this mean?

A married couple who plans properly could exempt up to $10.98 million at the federal level.

Currently, there is still a $2 million cap on what can pass free of estate tax in New Jersey.

Although it is scheduled to no longer exist after this year, it is in effect for 2017.

Another bummer?

New Jersey does not allow for portability.

How are estate taxes calculated?

The tax is calculated from the gross estate, excluding certain deductions.

What are some of these deductions?

• Estate Administration expenses
• Debts
• Funeral expenses
• Charitable donations
• Bequests to a spouse in the form of a qualified trust
• Bequest made outright to the surviving spouse

What assets are generally included?

All assets controlled or owned by the deceased individual.

Does this include a life insurance policy?

If it is paid to the estate or a third-party beneficiary, yes.

The state inheritance tax is also a factor.

What are these rules?

In New Jersey, the rules are different from the estate tax.

They involve a variety of factors.

Like what?

• Whether the transfer or bequest was made within three years of the death of the individual.
• The relationship of the beneficiary to the decedent.
• The type and value of the asset.

How do these factors affect the inheritance tax?

There is no inheritance tax if an individual is of a certain relationship.

What relationships are included in the exemption?

• Spouse
• Grandparent
• Parent
• Domestic partner
• Descendant
• Charity
• Step-child of the decedent

Does the amount matter?

No.

Not for any of the aforementioned relationships.

What about if the relationship is not one mentioned above?

The nature of the relationship as well as the value and type of asset must be considered together.

Are certain assets completely exempt from inheritance tax?

Yes.

Life insurance is always exempt in New Jersey ... if it is paid to the beneficiary or the trust of the beneficiary.

What if it is paid to the estate?

The tax exemption does not apply.

Does this seem like a lot to consider?

It is.

For the most tax-efficient planning, you must work with an experienced estate planning attorney.

He or she will be able to create a plan to align with the unique estate and inheritance tax laws for your state.

Remember: “An ounce of prevention is worth a pound of cure.” When making your financial, tax and estate plans, do not go it alone. Be sure to engage competent professional counsel.

For more information about estate planning in Overland Park, KS (and throughout the rest of Kansas and Missouri), visit our estate planning website and be sure to subscribe to our complimentary estate planning e-newsletter while you are there.

Reference: NJ.com (March 28, 2017) “Is inheritance tax owed on life insurance?”

How does "Portabililty" Impact My Estate Plan?

Lots of things have changed over the years. Yes, again, I am a master of the obvious.

This certainly is true when it comes to estate planning.

This was the theme of a recent article in The (Anderson, IN) Herald Bulletin titled "Changes in laws can affect your estate planning."

The article explains the basics regarding how revocable grantor trusts are created to help folks avoid probate and how they work.

For example, the three parties to every revocable grantor trust are the grantor (the person creating the trust, also known as a trustmaker, settlor or trustor), the trustee who manages the assets held in trust (typically the grantor), the lifetime income/principal beneficiary (also usually the grantor), and the remainder beneficiary (those who inherit after the grantor/trustee/beneficiary dies).

Taxes from investments and income are reported on the standard Form 1040 tax return of the grantor.

When assets are placed in a trust ("funding the trust"), the grantor/trustee/beneficiary has control and the use of the trust assets.

Ownership is structured so that there is no probate required to manage or distribute trust assets should the grantor/trustee/beneficiary become incapacitated or upon his or her death.

As a result, grantors should fund the trust with all of their assets with the exception of IRAs and retirement accounts.

Under previous laws, separate trusts were oftentimes created for a married couple and considerable time would be spent determining how to split the couples' assets between the two trusts.

Why?

Because, under the laws at that time, when the first spouse passed the survivor would be able to only use the unified credit available to the assets of the deceased spouse to avoid death tax liability. 

Again, technically speaking, to avoid probate and minimize estate taxation spouses would have to create two trusts—both revocable—and when one spouse passed, that trust would become irrevocable.

Thereafter, all of the income would be paid to the surviving spouse along with discretionary principal.

Any trust assets remaining at the death of the surviving spouse would pass to remainder beneficiaries.

That, however, was then.

This is now.

A recent tax law change provides for the "portability" of the unified credit of the deceased spouse ... without the creation of a separate trust. 

Oh, by the way, the death tax only impacts estates worth more than $5.34 million for singles and $10.86 million for married couples.

That kind of puts things in perspective, yes?

Consequently, this tax law change makes it imperative that married couples re-examine their separate trusts and perhaps even consider funding a single trust for both of them together.

The original article acknowledges that we all like to compartmentalize decisions.

I mean who really wants to think about estate planning, if given the option to do anything else?

I get that.

Nevertheless, you need not go down that road alone.

Contact an experienced estate planning attorney first to see if your estate plan needs to be updated. 

So, how do you find an "experienced" estate planning attorney?

First, ask around. Friends, family and other professional advisors are trustworthy sources.

Second, conduct an "organic" search on "Google" for "estate planning" near you (e.g., "estate planning Overland Park KS".

Third, either way, verify. Check out the education, experience, ratings and client reviews of any attorney before you contact him or her.

How?

There are two helpful resources just a mouse click away to assist with your due diligence:  Avvo.com and Lawyers.com. 

Check any Avvo ratings, client ratings/testimonials and attorney endorsements on Avvo.com and any "peer ratings" by judges/other attorneys and any client ratings/testimonials on Lawyers.com.

In fact, I use both of these services to thoroughly vett attorneys before referring members of our "client" family for legal help.

Remember: “An ounce of prevention is worth a pound of cure.” When making your financial, tax and estate plans, do not go it alone. Be sure to engage competent professional counsel.

For more information about estate planning in Overland Park, KS (and throughout the rest of Kansas and Missouri), visit my estate planning website.

Reference: The (Anderson, IN) Herald Bulletin (July 10, 2015) "Changes in laws can affect your estate planning."

Estate Tax Basics

Taxes related to your estate are some of the most complex in the entire tax code. Why are they so complex? According to "Sutton's Law," named after famous bank robber Willie Sutton, "That's where the money is."

Consequently, it is only prudent that you apprehend some of the basic laws impacting your estate so you can safely navigate them.

A recent Motley Fool article, titled “Estate Tax in 2015: 4 Rules You Should Know,” can help you jumpstart your estate tax education. 

The estate tax exclusion is now $5.43 million. The federal estate tax applies only to those whose taxable estates exceed a certain amount. The United States has a unified gift and estate tax system. As a result, if you make taxable gifts during your lifetime, then you will use up some of this $5.43 million in advance. Even though you will not have to actually come up with funds to “pay” a gift tax at the time you make the gift, you will need to file a gift tax return.

The annual gift tax exclusions is still $14,000. This annual gift exclusion makes most gifts nontaxable, allowing you to give up to $14,000 in cash or property to anyone again this year. 

Gift or estate tax? The estate tax laws have rules making certain types of gifts and bequests non-taxable. Take the marital deduction as an example. This deduction allows spouses to give as much as they wish to one another without any gift or estate tax consequences. Similarly, charitable donations are not subject to taxation, either through your estate or as lifetime gifts.

You can also make gifts for educational expenses or medical expenses in an unlimited amount without any estate or gift taxes. However, you must pay the institution directly, rather than sending money through the family member or other person who incurred those educational or medical expenses.

Otherwise, you will be denied this special exclusion and your generousity will be counted toward your $14,000 annual gift exclusion for the person whom you are benefitting. As noted earlier, any amount over your annual gift exclusion will reduce your unified estate and gift exemption and require you to file a gift tax return.

I told you this stuff was complicated.

Double your estate tax exemptions if you are married. If you are married, the typical estate plan involves leaving everything to your surviving spouse. In the past this meant forfeiting the estate tax exemption available in the estate of the first decedent spouse. Now, however, with the new "portability" laws a surviving spouse can "inherit" the unused estate tax exemption of the deceased spouse.

While portability has been a permanent part of the estate tax laws since 2013, you should have your estate plan reviewed to make sure it remains an option for your estate and changes can be made if out-of-date.

There, that is an overview of some practical estate planning pointers. Be sure to consult an experienced estate planning attorney and discuss these issues in the context of your unique circumstances. 

Remember: “An ounce of prevention is worth a pound of cure.” When making your financial, tax and estate plans, do not go it alone. Be sure to engage competent professional counsel.

For more information about estate planning in Overland Park, KS (and throughout the rest of Kansas and Missouri) and to download free tools to help you organize your estate, visit my estate planning website. 

Reference: Motley Fool (December 28, 2014) “Estate Tax in 2015: 4 Rules You Should Know”

Considering "Basis" When Electing Estate Planning Alternatives / Overland Park, Ks

New circumstances give rise to new alternatives (and opportunities) for estate planners. This, in turn, is creating some new and difficult choices.

With the new ability to minimize estate taxation, known as “portability,” there is now a choice between the automatic portability plan and the old standby of the trust-based plan, notably the "credit shelter trust" plan.

One important detail driving the choice is the “step up in basis,” as pointed out in a recent Forbes article titled “Portability Plans Vs Credit Shelter Plans Round 1: Step Up in Basis.”

As you may know, the laws surrounding estate and wealth transfer planning underwent a tumultuous change with ATRA.

Time was, we spent our planning sessions looking over our shoulder to see what the status of the estate tax was, but that is a gentler beast these days. Nevertheless, there are new competing concerns for which to plan.

The old planning techniques are not necessarily less useful today, but our motivations may have changed.

To learn more about the old tricks, there are a few related Forbes articles worth perusing: “Planning for Married Couples After ATRA: The Simple Portability Based Plan” and Part 2 thereto.

So what is the takeaway regarding the step up in basis in Overland Park and elsewhere?

A “step up in basis” is somewhat subtle, but its effect is not to be overlooked. After all, the basis of an asset will determine the taxable value to your heirs. Accordingly, to have the basis stepped up at various stages can only help cut the overall tax bill. Consequently, any plan that lets you do this can be useful.

Unfortunately, it is not that simple. Depending upon the assets, simply using the “portability plan” can help realize the greatest tax savings and the original article runs through the scenarios with some math to show how it works.

Whether you have an older pre-ATRA plan in place or if you are just now looking to set up your estate plan, there are simply more moving parts to consider these days. One of those considerations just happens to be cost basis.

Now, more than ever, it is essential to seek competent estate planning legal counsel to help chart the best course for your assets to meet the unique needs of your family.

Remember: “An ounce of prevention is worth a pound of cure.” When making your financial, tax and estate plans, do not go it alone. Be sure to engage competent professional counsel.

For more information about estate planning in Overland Park, KS (and throughout the rest of Kansas and Missouri) and to download free tools to help you organize your estate, visit my estate planning website.

Reference:

Forbes (April 8, 2014) “Portability Plans Vs Credit Shelter Plans Round 1: Step Up in Basis”

            Forbes (March 18, 2014) “Planning for Married Couples After ATRA -- Part I”

            Forbes (March 25, 2014) “Planning for Married Couples After ATRA -- Part 2”

Understanding The “Portability” Estate Tax Protocol / Overland Park, KS

The devil truly is in the details when it comes to much of life. So it is with taxes and estate tax planning.

This is especially the case with new changes to the federal estate tax laws. It seems experts and taxpayers alike are grappling with the ins and outs of “portability.”

How and when can it be used, whether in Overland Park and elsewhere?

The temporary regulations governing portability are now on the books. While there is some guidance regarding how a “Deceased Spouse Unused Exemption” (DSUE) actually works, a recent Forbes article, titled “Estate Tax Portability - Date DSUE Amount May Be Taken Into Account,” provides some practical advice.

As many know, “portability” refers to the new ability of a deceased spouse to pass along their unused unified exemption amount (the amount in a lifetime that you can either transfer without gift tax or can pass through your estate without estate tax) to their surviving spouse without implementing traditional estate tax planning techniques.

The question many surviving spouses might face is when to make use of the exemption. What if they have a gifting strategy, especially if there is little time to spare? Does the DSUE pass immediately or does the estate tax return have to be filed?

As a rule of thumb, the DSUE passes immediately. In turn, this can buy some time given how long it could take to file an estate tax return.

As with all tax matters, be sure to consult with your professional advisors before making a move you cannot undue later.

Remember: “An ounce of prevention is worth a pound of cure.” When making your financial, tax and estate plans, do not go it alone. Be sure to engage competent professional counsel.

For more information about estate planning in Overland Park, KS (and throughout the rest of Kansas and Missouri) and to download free tools to help you organize your estate, visit my estate planning website.

Reference: Forbes (January 14, 2014) “Estate Tax Portability - Date DSUE Amount May Be Taken Into Account”