Question

please list and explain the Estate Planning Techniques.

Answer 1

The Estate Planning Techniques are listed and explained as follows:

1. Taking the advantage of temporary increase in exemptions from gift and estate tax.

Transfer of property with death or lifetime gift in excess of exemption are taxed at a federal tax rate of 40%. Married couples will be able to transfer $22.8 million of property without levy of transfer tax. Taxpayers should consider advisors as to which assets to transfer for availing exemption for lifetime gift.

2. Taking the advantage of temporary increase in exemption from Generation Skipping Transfer Taxes

GSTT exemption will also increase to $11.4 million for individuals and $22.8 million for married couples. The Act do not impose any limitation on duration of transfer. Taxpayers who are planning to take this advantage must ensure that they have filed Form 709 for asset transfers to avail GSTT exemptions.

3. Annual gifts.

In 2018 & 2019, individuals may make gifts upto $15,000 per recipient without levy of tax. Annual amount to be given to non-citizen spouses have increased to $155,000 in 2019.

4. Interest rate sensitive opportunities must be considered.

IRS publishes interest rates every month that the taxpayers must use while planning income and exemptions. Several planning strategies are there which are benefited with low interest rates. Taxpayers who benefit with low interest rates must plan their strategies before AFR increases.

5. Taking advantage of Basis Planning

If a taxpayer think that his assets have low basis than the fair market value, then he should consider exchanging it with cash or assets with high basis. If assets are sold, no tax will be levied on sale proceeds up to the "stepped-up" basis.

6. Consider cumulating Charitable Contributions into one year

The Act allows taxpayer to deduct charitable contributions up to 60% of Adjusted Gross Income, which was 50% in prior year. It may be beneficial to plan charitable contributions in a single year rather than in multiple years.

7. Considering State and Local taxes

The Act has limited deduction for state and local taxes. Both single and joint filers are permitted to a maximum of $10,000 as itemized deduction for state and local taxes.

8. Having awareness of State level

Many states impose estate taxes on decedents. Decedents with death after January 1, 2019 are not required to include the amount of gifts to calculate New York gross estates.

9. To determine if Old trusts would benefit from Modification

The concept of transferring assets from one trusts to another has become popular. New law permits trustees to modify irrevocable trusts without court approval.