Interview about Estate Taxes


by David D. Holland




I was recently interviewed by a journalist about estate taxes and thought you might find my answers helpful.


1. What are the limits that currently apply for estate taxes? What are some of the strategies for managing the limits for gifting?


Estate and gift taxes only apply to a very small percentage of people. The current limit is $5.43 million per person, and the surviving spouse picks up any unused portion of a deceased spouse’s estate tax exemption. That means a married couple can transfer over $10 million to heirs without estate taxes. As to gift taxes, each person can give up to $14,000 per year to as many people as they want without taxation. On top of that, the same $5.43 million estate exemption can be used to make a large gift during life, instead of at death, without taxes for either party. If someone has a rapidly appreciating portfolio or property, they can take advantage of the gift exemptions to move that asset to their heirs. Often, wealthy clients will also use the annual $14,000 gift to buy life insurance to leave a greater, tax-free legacy.



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2. Do “Credit Shelter Trusts” Still Make Sense?


Credit shelter trusts have been used for years to “shelter” and preserve a deceased spouse’s estate tax exemption while still giving income to the surviving spouse. Because the unused portion of a deceased spouse’s exemption amount can now be “inherited” by the surviving spouse, credit shelter trusts aren’t used as often as they were in the past.


3. Do “Irrevocable Trusts” Help Save on Taxes?


In the right situations, an irrevocable trust may help reduce estate taxes. However, these trusts are subject to the same income tax brackets as an individual, but the dollar difference between tax brackets is very narrow. For 2015, a trust can reach the highest bracket of 39.6% with just $12,301 of taxable income, while a married filing jointly couple would need over $464,850 to be in the same bracket. Given these differences, it’s often better to be taxed at the individual level and not at the trust level. Families with these trusts usually disburse the income to the trust beneficiaries who then pay tax on their share.


If you have tax questions or need professional help preparing your income taxes, Holland Tax & Accounting Services is now accepting new client appointments.


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