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ESTATE PLANNING BASICS by Stuart A. Rader, Attorney At Law © 2000
Rader & Coleman, 2101 N.W. Boca Raton Boulevard, Suite 1, Boca Raton, Florida 33431 Telephone: (561) 368-0545
A. Basic estate planning takes advantage of the following three items: marital deduction, unified credit and annual gift tax exclusions.
1. The Marital Deduction provides that during lifetime or upon death, a spouse may transfer to his or spouse an unlimited amount without any transfer tax.
2. The Applicable Credit Amount Exemption Equivalent is the amount that one can pass to another person or trust, free from transfer tax. Here is a summary of the exemptions and rates:
|
Calendar Year |
Estate and GST Tax Exemption |
Gift Tax Exemption |
Highest Estate, Gift and GST Tax Rate |
|
2002 |
$ 1 million |
$1 million |
50% |
|
2003 |
$ 1 million |
$1 million |
49% |
|
2004 |
$1.5 million |
$1 million |
48% |
|
2005 |
$1.5 million |
$1 million |
47% |
|
2006 |
$ 2 million |
$1 million |
46% |
|
2007 |
$ 2 million |
$1 million |
45% |
|
2008 |
$ 2 million |
$1 million |
45% |
|
2009 |
$3.5 million |
$1 million |
45% |
|
2010 |
Taxes Repealed |
$1 million |
35% |
|
After 2010 |
$ 1 million |
$1 million |
55% |
3. The Annual Gift Tax Exclusion is $11,000 per year, per donee. Married persons may effectively gift $22,000 per year, per donee, even if all funds came from one spouse through gift splitting.
B. The tools to implement basic estate planning include: Wills, Gifts, Revocable Trusts, and Beneficiary Designations for IRAs, Qualified Plans, and Life Insurance.
ESTATE TAX MARITAL DEDUCTION: DON'T "OVER QUALIFY" ESPECIALLY IN LIGHT OF THE INCREASING EXEMPTION
There are no limits on how much of a marital deduction your estate can qualify for. Thus, if one's entire estate passes to the surviving spouse, there will be no federal estate tax on the first to die. Many taxpayers take this simple approach to estate planning. In many instances, however, it can cost a family hundreds of thousands of dollars in extra estate taxes. Here's why.
Common Over Qualification Patterns. One reason an estate may over qualify for the marital deduction is there are ways for property to pass to the surviving spouse automatically that is, not through the taxpayer's trust, will, or probate estate. Two common examples are jointly owned property and life insurance. If a married couple owns property jointly with survivorship rights, the surviving spouse obtains complete ownership by operation of law outside the estate. Under the estate tax rules, half the value of the property is included in the gross estate but qualifies for the marital deduction since it goes to the surviving spouse. Similarly, if the surviving spouse is the beneficiary of life insurance which is included in the estate, the marital deduction applies. Accordingly, to avoid "over qualifying" for the marital deduction, it is important to know what property is already targeted to go to the surviving spouse. Then steps can be taken within your estate plan to make sure enough assets are set aside to take advantage of the unified credit. |
