Tax Efficient Planning
1. Basic Tax Efficient Estate Planning
So you have a will and a trust. That's great! However, that is not the end the planning process if you want a tax efficient estate plan!
Underfunding of the credit shelter trust (or bypass trust) at the death of the first spouse is a very common problem in many estate plans that I review. Underfunding of the credit shelter trust can, in some cases, result in an estate tax where the estate tax might otherwise have been avoided had assets been aligned (titled) to act in conjunction with the tax plan set forth in the will or trust.
Sometimes underfunding the credit shelter trust is unavoidable, such as when the estate contains significant qualified retirement assets (IRAs, 401Ks etc.). However, sometimes underfunding is the result of a failure to coordinate the tax plan set forth in your will or trust and the assets available. Moreover, even when an estate contains assets otherwise not suitable for funding a credit shelter trust, thoughtful and creative estate planning can sometimes still improve a client's estate tax position.
The following visual aid illustrates the general estate tax impact that underfunding the credit shelter trust might have on a hypothetical 2 million dollar estate where a $200,000 asset, held jointly, passes by rights of survivorship to the surviving spouse.
The above hypothetical illustrations assumes that the state estate tax exemption amount is $1 million. However, as of Jaunary 1, 2013 the exemption amoutn in Maine was increased to $2 million. The exemption amount in Massachusetts remains at $1 million.
If you are not sure if your estate plan has been reviewed for estate tax efficiency, please call or e-mail me to schedule an appointment for an independent legal review your estate plan!
2. Tax Efficient Gifting
Do you fully understand the impact that a gift of property has on the recipient and its potential tax implications? Before you make a gift of any real property or investment asset, invest in an hour to meet with me to discuss your plans to ensure that you are making the most of your assets transfer. If you are going to make a gift, great! Just be sure that you are gifting in a tax efficient manner so as to make the most of that gift!
3. Income Tax Efficient Estate Planning
The 3.8% Medicare tax imposed under the Affordable Care and Patient Protection Act on the lesser of net investment income or taxable income above $200,000 (single) or $250,000 (joint), or $11,950 for estates and trusts, will have a large impact on how trusts and estates should be managed to be tax efficient. Now, more than ever, it is important that your legal advisor have a thorough understanding of the taxation of trusts and estates (Subchapter J of the Internal Revenue Code) and to ensure that your current trust documents (and prior distribution history) are reviewed with an eye toward ensuring that capital gains are not trapped in the trust and taxed at the maximum capital gain rate. Proactive trust and estate management will be critical in the coming years to ensure that investment gains are not reduced unnecessarily by the 3.8% Medicare tax.
4. Tax Efficient Trust Adminstration
Articles on Tax Efficient Planning
Steve Jobs' estate not likely to owe tax (Estimates put his net worth around $7 billion) By Deborah L. Jacobs, Forbes 10/18/2011; http://www.msnbc.msn.com/id/44905598/ns/business-forbes_com/?utm_medium=referral&utm_source=pulsenews
Attorneys in York, Maine serving Maine (York and Cumberland counties including: York, York Beach, Kittery, Kittery Point, Eliot, South Berwick, North Berwick, Berwick, Ogunquit, Wells, Kennebunkport, Kennebunk, Alfred, Lyman, Arundel, Biddeford, Saco, Sanford, Springvale, Acton, Shapleigh, Limerick, Scarborough, and Portland) and Northern Massachusetts (including: Boston, Saugus, Dorchester, Roxbury, Waltham, Beverly, Lynn, Medford, Newbury, West Newbury, Newburyport, Newton, Peabody, Lowell, Lawrence, Andover, Boxford, Amesbury), with a focus on Estate Planning (Wills and Trusts, probate and estate administration), Elder Law, and Tax (estate, gift, and income) matters, and providing general business formation (LLC, Corporations, and General and Limited Partnership) services and business succession planning and real estate services.