Chicago Estate Planning Attorneys
Things You Should Know About Estate Planning
Estate Planning can bring you peace of mind and facilitate the process of aging and retirement planning. In addition to Wills, Trusts, and Powers of Attorney, other issues to consider when preparing estate planning documents are federal and state taxes and gifts to loved ones. The most cost-effective way to reduce estate taxes is by preparing a comprehensive estate plan. A complete plan which takes into consideration your current financial situation, the size of your estate, and any gifts you plan on giving or have already given to loved ones, may not only help reduce your taxes, but may also save a considerable amount of attorney’s fees when it comes time to settle your estate. It can also help you avoid costly estate litigation, minimize probate issues, and avoid disagreements among beneficiaries and heirs. Take proactive measures to secure your future and that of the ones you love by contacting our office. We will discuss a more in depth analysis with you depending upon your particular situation. Below is a brief overview of taxes and lifetime gifts you may find beneficial.
Federal and State Tax Considerations
In 2001, Congress passed a law that made sweeping changes to the existing estate taxation scheme. Over the next several years, the estate tax is being phased out and as of 2010, it is eliminated! However, under this law, the estate tax is re-instated in 2011. Between now and 2011, Congress will likely make some further changes to this plan. The taxable estate includes all property owned by you or by a trust you control outright, or by a trust to which you have significant "strings attached." Using a trust to keep property out of the taxable estate will only work if you give up control of the trust. It must be an irrevocable trust. The taxable estate also includes qualified retirement plan proceeds and life insurance proceeds, if the policy is owned by the deceased. There are also regulations concerning spouses. For example, a spouse may leave his or her entire estate to the surviving spouse without the estate being subject to the federal estate tax. However, the estate will be subject to the federal estate tax upon the death of the surviving spouse. As of now, a federal estate tax return must be filed for every estate where the estate exceeds the applicable exclusion, or "shelter" amount ($2,000,000 in 2006). It is also important to determine if your state has an estate tax or state inheritance tax because a state income tax return may also need to be filed. A final United States income tax return must also be filed on behalf of the deceased.
Life Time Gifts Considerations
As of 2009, any taxpayer may make annual lifetime gifts of $13,000 to an unlimited number of recipients. These gifts are not included in the federal taxable estate, unless they are made within three years of your death and they do not use up any of your "shelter" amount. For example, Bob may give $13,000 to his daughter, Lisa, in 2009, and $13,000 to his son, Tom, also in 2009. There is a separate federal gift tax for lifetime gifts, but annual gifts of $13,000 or less are excluded, and there is a $1,000,000 exemption before gift taxes begin to accrue on lifetime gifts. Also, it is better to make lifetime gifts of property that are expected to appreciate because the increase in value will escape estate taxation or delay taxation for another generation. Conversely, if property has already significantly increased in value, it is better to designate it through a will because the person receiving the property through the will gets a "stepped-up basis" equal to the property's value at the time of your death. If the property is sold after your death, capital gains taxes will be the difference between the value at your death and the price obtained rather than the amount you paid for it and the price obtained. However, because tax laws continue to evolve, the rules for "stepped-up basis" may not always be available. As with all other rules and regulations, there are generally exceptions and modifications to these tax laws.
Although our firm does not specialize in tax law, our attorneys take into consideration your tax issues when planning your estate. Contact our offices to schedule a free initial consultation and let us provide you with a comprehensive plan that will suit your specific needs.