Post by Admin/YBB on Jul 1, 2024 15:18:51 GMT -6
Estate Planning - General
Estate planning is a very complex topic that also has many legal aspects. That is why there are books on it & many professionals specialize in it. Here, 2 viewpoints considered are of people planning while living, and of people needing information after the passing of family members.
When a person dies INTESTATE, i.e. without a Will or Trust, his/her estate is the default beneficiary & there is also a default estate plan for distribution of assets to relatives. These matters are settled publicly by the PROBATE court. An EXECUTOR is appointed by the Court, if one isn’t named already, for resolution of debts, bills, last expenses, taxes & distribution of assets among the heirs. After probate court actions, all matters related to deceased person are deemed settled & no further claims remain on the estate or the heirs.
States have SMALL ESTATE exemptions for probate. So, if most assets are transferred through joint accounts, POD/TOD (Totten trusts), trusts, beneficiary designations (IRAs, 401k/403b, pensions, annuities, insurance, etc), & the remaining assets are under state’s small estate limit, public probate is avoided. It’s very important for people with LIVING TRUSTS to keep non-Trust assets (checking accounts, cars, household property) under the state’s small estate limit.
A separate thread is on BENEFICIARIES,
Beneficiaries ybbpersonalfinance.proboards.com/thread/602/beneficiaries-accounts-wills-living-trusts
For most accounts with named beneficiaries, financial institutions will require the copies of death certificates. But for some account actions, letters from executors & copies of the probate court orders may be required.
People can give GIFTS up to the annual exclusion amount to any person(s) without any tax implications. For annual gifts in excess of the annual exclusion amounts, Form 709 must be filed. State 529 annual contribution limits are the same as the annual federal gift exclusion limit, but 5-year pull-forward of these amounts is allowed for 529s (& if used, no further 529 contributions are allowed for 5 years).
Form 709 filings are to keep track of excess gifts over lifetime that exceeded the annual exclusion amounts. While no taxes are due on these excess annual gifts, these excess gifts will cut into the lifetime estate & gift exemption (unified or combined).
There is unlimited MARITAL exemption for the surviving spouse. PORTABILITY election can significantly increase the lifetime estate & gift exemption for the surviving spouse. Portability of estate & gift exemption for couples means that the unused estate & gift exemption for the deceased spouse becomes available (i.e. portable) to the surviving spouse.
Accounts such as state 529s, DAFs (donor advised funds), etc move the assets out of the estate. Except for some short-term claw-backs that may be possible, these asset shifts are irreversible.
MEDICAID eligible estate planning involves special trusts that are recognized by Medicare as exempt from Medicaid lookbacks.
Federal estate tax rates are 18-40% on taxable gross estate beyond the lifetime estate & gift exemption. Most states don’t have estate taxes, but 12 states & DC (CT, HI, IL, ME, MD, MA, MN, NY, OR, RI, VT & DC) have some state estate taxes (for IL, 0.08-16% over $4 million); six states have inheritance taxes (IA, KY, MD, NE, NJ, PA). Excess gift taxes may also apply.
2017 Tax Cut & Jobs Act (TCJA) provisions are expiring in December 2025. A big change will be that the lifetime estate & gift exemption will be cut in half in 2026. The estate planning actions taken by 2025 wouldn’t be affected whether or not some of TCJA is extended. Couples may do partial estate planning by completing the plan for one spouse under the current TCJA & leaving the estate plan open/flexible for the other spouse for later.
Wills vs living trusts vs extensive use of joint accounts, POD/TOD is a popular topic of discussion. For the estates of moderate complexity, living trusts may be worth the headaches & expense. But after setting up the living trust, properly fund it by retitling most assets into the trust, keeping the non-Trust assets under the state’s small estate limit. If this isn’t followed through, then the effort & money are basically wasted.
TCJA www.investopedia.com/taxes/trumps-tax-reform-plan-explained/
TCJA en.wikipedia.org/wiki/Tax_Cuts_and_Jobs_Act
TCJA Expiration www.cnbc.com/2024/05/18/trump-tcja-tax-cuts-are-slated-to-expire-after-next-year.html
TCJA Expiration uswealth.bmo.com/insights/estate-planning-act-now-before-the-sun-sets-on-these-estate-planning-tax-breaks/
CNBC on Estate Taxes www.cnbc.com/select/what-is-estate-tax-and-who-pays-it/
US Bank on Estate, Gift & Inheritance Taxes www.usbank.com/wealth-management/financial-perspectives/trust-and-estate-planning/estate-taxes.html
Federal Estate Tax www.nolo.com/legal-encyclopedia/estate-tax
Federal Estate Tax www.nolo.com/legal-encyclopedia/federal-gift-estate-law-2013-beyond.html
Federal Gift Tax www.nolo.com/legal-encyclopedia/the-federal-gift-tax.html
Estate & Gift Tax FAQs www.nolo.com/legal-encyclopedia/estate-gift-tax-faq.html
IL Estate Tax www.nolo.com/legal-encyclopedia/illinois-estate-tax.html
Estate planning is a very complex topic that also has many legal aspects. That is why there are books on it & many professionals specialize in it. Here, 2 viewpoints considered are of people planning while living, and of people needing information after the passing of family members.
When a person dies INTESTATE, i.e. without a Will or Trust, his/her estate is the default beneficiary & there is also a default estate plan for distribution of assets to relatives. These matters are settled publicly by the PROBATE court. An EXECUTOR is appointed by the Court, if one isn’t named already, for resolution of debts, bills, last expenses, taxes & distribution of assets among the heirs. After probate court actions, all matters related to deceased person are deemed settled & no further claims remain on the estate or the heirs.
States have SMALL ESTATE exemptions for probate. So, if most assets are transferred through joint accounts, POD/TOD (Totten trusts), trusts, beneficiary designations (IRAs, 401k/403b, pensions, annuities, insurance, etc), & the remaining assets are under state’s small estate limit, public probate is avoided. It’s very important for people with LIVING TRUSTS to keep non-Trust assets (checking accounts, cars, household property) under the state’s small estate limit.
A separate thread is on BENEFICIARIES,
Beneficiaries ybbpersonalfinance.proboards.com/thread/602/beneficiaries-accounts-wills-living-trusts
For most accounts with named beneficiaries, financial institutions will require the copies of death certificates. But for some account actions, letters from executors & copies of the probate court orders may be required.
People can give GIFTS up to the annual exclusion amount to any person(s) without any tax implications. For annual gifts in excess of the annual exclusion amounts, Form 709 must be filed. State 529 annual contribution limits are the same as the annual federal gift exclusion limit, but 5-year pull-forward of these amounts is allowed for 529s (& if used, no further 529 contributions are allowed for 5 years).
Form 709 filings are to keep track of excess gifts over lifetime that exceeded the annual exclusion amounts. While no taxes are due on these excess annual gifts, these excess gifts will cut into the lifetime estate & gift exemption (unified or combined).
There is unlimited MARITAL exemption for the surviving spouse. PORTABILITY election can significantly increase the lifetime estate & gift exemption for the surviving spouse. Portability of estate & gift exemption for couples means that the unused estate & gift exemption for the deceased spouse becomes available (i.e. portable) to the surviving spouse.
Accounts such as state 529s, DAFs (donor advised funds), etc move the assets out of the estate. Except for some short-term claw-backs that may be possible, these asset shifts are irreversible.
MEDICAID eligible estate planning involves special trusts that are recognized by Medicare as exempt from Medicaid lookbacks.
Federal estate tax rates are 18-40% on taxable gross estate beyond the lifetime estate & gift exemption. Most states don’t have estate taxes, but 12 states & DC (CT, HI, IL, ME, MD, MA, MN, NY, OR, RI, VT & DC) have some state estate taxes (for IL, 0.08-16% over $4 million); six states have inheritance taxes (IA, KY, MD, NE, NJ, PA). Excess gift taxes may also apply.
2017 Tax Cut & Jobs Act (TCJA) provisions are expiring in December 2025. A big change will be that the lifetime estate & gift exemption will be cut in half in 2026. The estate planning actions taken by 2025 wouldn’t be affected whether or not some of TCJA is extended. Couples may do partial estate planning by completing the plan for one spouse under the current TCJA & leaving the estate plan open/flexible for the other spouse for later.
Wills vs living trusts vs extensive use of joint accounts, POD/TOD is a popular topic of discussion. For the estates of moderate complexity, living trusts may be worth the headaches & expense. But after setting up the living trust, properly fund it by retitling most assets into the trust, keeping the non-Trust assets under the state’s small estate limit. If this isn’t followed through, then the effort & money are basically wasted.
TCJA www.investopedia.com/taxes/trumps-tax-reform-plan-explained/
TCJA en.wikipedia.org/wiki/Tax_Cuts_and_Jobs_Act
TCJA Expiration www.cnbc.com/2024/05/18/trump-tcja-tax-cuts-are-slated-to-expire-after-next-year.html
TCJA Expiration uswealth.bmo.com/insights/estate-planning-act-now-before-the-sun-sets-on-these-estate-planning-tax-breaks/
CNBC on Estate Taxes www.cnbc.com/select/what-is-estate-tax-and-who-pays-it/
US Bank on Estate, Gift & Inheritance Taxes www.usbank.com/wealth-management/financial-perspectives/trust-and-estate-planning/estate-taxes.html
Federal Estate Tax www.nolo.com/legal-encyclopedia/estate-tax
Federal Estate Tax www.nolo.com/legal-encyclopedia/federal-gift-estate-law-2013-beyond.html
Federal Gift Tax www.nolo.com/legal-encyclopedia/the-federal-gift-tax.html
Estate & Gift Tax FAQs www.nolo.com/legal-encyclopedia/estate-gift-tax-faq.html
IL Estate Tax www.nolo.com/legal-encyclopedia/illinois-estate-tax.html
