Estate & Gift Taxes

A critical part of estate planning is minimizing liability for Estate and Gift Taxes. Under current federal estate tax laws, the estate tax exemption is $2,000,000. For estates with total assets of less than $2,000,000, no federal estate tax is due. For estates with assets that exceed $2,000,000, that federal estate tax rate is 45%. An estate with total assets of $4,000,000 must pay $900,000 in federal estate taxes. For Massachusetts residents, the estate tax exemption is $1,000,000. An estate that exceeds this exemption must pay Massachusetts estate taxes, in addition to paying the federal estate taxes due. For an estate with assets of $4,000,000, the Massachusetts estate tax is $280,400. In this case, the amount paid to Massachusetts can be deducted from the federal taxable estate, to reduce the federal estate taxes to $773,820. In 2008, the total estate taxes due from the estate of a Massachusetts resident with assets of $4,000,000 is $1,054,220, or 26.4% of the total estate. This amount must be paid by the Executor, nine months from the date of death, before distributions can be made to the beneficiaries. Many individuals who believe that they do not have to worry about estate taxes are wrong. Your taxable estate includes real estate, bank accounts, investments, retirement accounts (IRA, 401-k, 403(b), Keough, and defined benefit plans), your share of all jointly owned assets, and death benefits that will be paid to the beneficiaries of your life insurance policies and annuities. If you own a business, the business must be appraised and added to the value of your taxable estate, even if the business will not continue after your death.

The good news is that you can reduce, or eliminate, estate taxes with advance planning. Under current laws, a married couple with total assets of $4,000,000 can eliminate liability for federal estate taxes with the use of Revocable Trusts. Each spouse can create a separate taxable estate by establishing a Revocable Trust and funding the Trust with one-half of the couple's combined assets. This will allow each spouse to make use of the federal estate tax exemption of $2,000,000, eliminating liability for federal estate taxes. Each spouse will also be able to make better use of the Massachusetts estate tax exemption. Although Massachusetts estate taxes will not be eliminated, they will be reduced from $280,400 to $182,000. With a little advance planning, the couple can reduce potential federal and Massachusetts estate tax liability from $1,054,220 to $182,000. This means an additional $872,220 will be distributed to the couple's children, grandchildren, and other beneficiaries, according to the instructions in their Revocable Trusts. For estates of $2,000,000 or less, there is no need to plan to eliminate federal estate taxes. However, an estate of $2,000,000 must pay $99,600 in Massachusetts estate taxes. A married couple with combined assets of $2,000,000 can eliminate liability for Massachusetts estate taxes by establishing two Revocable Trusts and allocating title to their assets so that each Trust holds assets of $1,000,000. Funding the Trusts will also avoid the need to probate the couple's Wills. A single person can reduce Massachusetts estate taxes by making yearly tax-exempt gifts of $12,000 per person. This type of planning is one of the many methods for reducing or eliminating liability for Gift and Estate Taxes. Other options include:

Establishing Marital Deduction, "Q-TIP", Credit Shelter, and Generation-Skipping Trusts

Funding 529 Education Savings Accounts for children and grandchildren

Gifting programs to take advantage of the annual gift tax exclusion of $12,000

Charitable gifting through outright gifts, Charitable Remainder Trusts, Charitable Lead Trusts, and Charitable Foundations

Establishing an Irrevocable Life Insurance Trust (ILIT) to exclude life insurance proceeds from your taxable estate and provide funds to pay for estate taxes

Formation of Family Limited Partnerships, LLC's, and LLP's to allow a business owner to make "discounted" gifts to family members

Changing your legal residence to another State to avoid the Massachusetts estate tax

For more than twenty-five years, Roberta A. Schreiber has worked with clients to implement estate plans that reduce, or eliminate, liability for estate and gift taxes. As part of the process of establishing a new estate plan, Roberta will help you determine the value of your taxable estate. She will work with your accountant and financial advisor to obtain accurate information about your assets. If your estate exceeds the applicable estate tax exemptions, she will explain how estate taxes are calculated and make recommendations to reduce or eliminate liability for estate taxes. As you can see from the example above, you can save hundreds of thousands of dollars with a relatively simple estate plan. After your documents have been signed, Roberta and her staff will assist you in completing the paperwork to implement your estate plan. If it is not possible to eliminate liability for estate taxes, Roberta will make recommendations for providing the funds to pay for estate taxes, so that a family vacation home or family business will not have to be sold to pay estate taxes. If you would like more detailed information about the current federal and Massachusetts gift and estate tax laws and planning techniques, please contact Roberta's assistant, Jeanne Carabello to request a complimentary copy of "The Client's Guide to Estate Planning and Estate Taxes". Jeanne can also schedule an appointment for an initial consultation.