Estate_Tax

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					Estates and Trusts
     FNBSLW 442
    Federal Estate Tax and
Federal Generation-Skipping Tax
                 Estate Tax
   A tax on a donor’s privilege of making a
    gratuitous transfer at death.
Basic Computation – Estate Tax
   Determine Contents of Gross Estate
   Value Gross Estate
   Subtract Deductions
   Determine Tax Base
   Compute Estate Tax
    Contents of the Gross Estate
   Gross Estate – for the purpose of the
    estate tax, property in which a decedent
    had an interest at death.
   All property, real or personal, tangible or
    intangible, wherever located.
   Includes probate and nonprobate assets,
    as well as some lifetime transfers.
     Contents of the Gross Estate -
              Examples
   Wedding ring, wallet, home and personal
    property, other real property, stocks and bonds,
    remainder interests, cds, spouse’s elective share,
    business interests, some joint tenancy interests,
    some annuity and death benefit interests,
    general power of appointment held by decedent.

   Not included – life estate interests from others,
    expectancy interest, some joint tenancy
    interests, some annuity and death benefit
    interests.
        Joint Tenancy Interests
   If J/T is with non-spouse, 100% interest is
    included in gross estate unless survivor
    purchased % of property w/ own funds.
   If J/T is with spouse, 50% interest is
    included in gross estate (but marital
    deduction applies).
Annuity and Death Benefit Interests
   If decedent had right to receive benefits,
    the value of the benefits that remain is
    part of the gross estate.
   However, if decedent did not have the
    power to name the beneficiary b/c they
    are statutorily payable to decedent’s
    spouse or children, the benefits are not
    included in the gross estate.
    Transfers w/ Retained Life Estate
    or Control of Beneficial Interests
   Gross estate includes property transferred
    by decedent during life if decedent
    retained:
       Life estate,
       Right to income for period not ending prior to
        decedent’s death,
       Right to income for period not ascertainable
        (with no reference to decedent’s death), or
       Right to designate the recipients of that
        property or the income therefrom.
             Transfers w/ Retained
             Reversionary Interest
   Gross estate includes property transferred
    by decedent during life if decedent
    retained reversionary interest and:
       donee must survive decedent to receive the
        property, and
       decedent retained reversionary interest that
        exceeds 5% of the value of the transferred
        property.
        Powers of Appointment
   Gross estate includes general power of
    appointment decedent had at time of
    death.
   Recall, a general power of appointment is
    one the decedent could exercise in favor
    of the decedent, his estate, or his
    creditors.
        Valuation of Gross Estate
   Property in the gross estate is normally
    valued as of the date of the decedent’s
    death.
   Some discounts might be applicable.
       Fractional discount
       Marketability discount
       Blockage discount
         Special Use Valuation
   Real property used for farming and closely
    held business real property that passes to
    a member of decedent’s family may
    qualify for special use valuation.
         Alternate Valuation Date
   Personal representative may elect to value
    the property at the alternate valuation
    date, six months after decedent’s death, if
    doing so would reduce both:
       value of the gross estate and
       amount of estate tax
   If selected, must be used for all assets.
                Deductions
   Marital Deduction
   Charitable Deduction
   Deductions for Expenses, Debts, and
    Taxes
    Deductions for Expenses, Debts,
              and Taxes
   Funeral expenses, administration
    expenses, debts and taxes are deductible
    from the gross estate. Also deductible
    are:
   Certain losses incurred during the
    settlement of the estate.
   Under EGTRRA, state death taxes on gross
    estate property, if decedent dies before
    2005 or after 12/31/2010.
      Computation of Estate Tax
   Begins by determining the taxable estate,
    i.e., the value of the gross estate reduced
    by the estate tax deductions.
                    Tax Base
   Determined by adding to the taxable estate all
    taxable gifts (except those already in the gross
    estate) the decedent made on or after January
    1, 1977, at their date of gift values.

   (Gifts covered by the annual exclusion, medical
    and educational expense exclusion, marital
    deduction and charitable deduction are not
    included in the tax base.)
                  Tentative Tax
   Computed on the tax base by using the
    rate schedule in I.R.C. § 2001(c).
   Exceptions:
       If the decedent dies in 2010, there is no
        federal estate tax owed regardless of the
        estate under EGTRRA.
       If the decedent dies in 2011 or thereafter, a
        different rate chart applies (the pre-EGTRRA
        chart).
        Tentative Tax Rate Schedule
If the amount with respect to which the   The tentative tax is:
tentative tax to be computed is:



Not over $10,000                          18% of that amount                    Over 250,000 but not over $500,000             $70,800 + 34% of excess over
                                                                                                                               $250,000

Over $10,000 but not over $20,000         $1,800 + 20% of excess over $10,000
                                                                                Over $500,000 but not over $750,000            $155,800 + 37% of excess over
                                                                                                                               $500,000

Over $20,000 but not over $40,000         $3,800 + 22% of excess over $20,000
                                                                                Over $750,000 but not over $1,000,000          $248,300 + 39% of excess over
                                                                                                                               $750,000

Over $40,000 but not over $60,000         $8,200 + 24% of excess over $40,000
                                                                                Over $1,000,000 but not over $1,250,000        $345,800 + 41% of excess over
                                                                                                                               $1,000,000

Over $60,000 but not over $80,000         $13,000 + 26% of excess over
                                          $60,000                               Over $1,250,000 but not over $1,500,000        $448,300 + 43% of excess over
                                                                                                                               $1,250,000

Over $80,000 but not over $100,000        $18,200 + 28% of excess over
                                          $80,000                               Over $1,500,000 but not over $2,000,000        $555,800 + 45% of excess over
                                                                                                                               $1,500,000


Over $100,000 but not over $150,000       $23,800 + 30% of excess over          Over $2,000,000                                $780,800 + 49% of excess over
                                          $100,000                                                                             $2,000,000


Over $150,000 but not over $250,000       $38,800 + 32% of excess over
                                          $150,000
                                                                                The former 5% additional tax on estates and gifts over $10 million is repealed after
                                                                                2001.
    Estate Tax Credits and Related
             Adjustments
   Estate tax credits and adjustments are
    subtracted from the tentative tax,
    including:
       Gift tax payable on decedent’s inter vivos
        taxable gifts made after 12/31/76, and
       Applicable credit amount (formally called the
        unified credit when the gift and estate taxes
        were the same).
           State Death Tax Credit
   If the decedent dies before 2005 or after 2010,
    the decedent’s estate will be entitled to a credit
    for state death taxes that the decedent’s estate
    actually pays subject to a cap based on the size
    of the decedent’s estate.
       Step one - compute the tentative maximum credit
        under the table,
       Step two – multiply the tentative credit by the
        appropriate percentage based on the decedent’s year
        of death from the chart.
           Estate Tax Return
   The estate tax return must be filed and
    the estate tax paid within 9 months of the
    decedent’s death.
         Liability for Estate Tax
   The personal representative of the
    decedent’s estate is obligated to pay the
    federal estate tax.
   If no personal representative has been
    appointed, “any person in actual or
    constructive possession of any property of
    the decedent is required to pay the entire
    tax to the extent of the value of the
    property in [the person’s] possession.”
      Federal Generation-Skipping
              Transfer Tax
   A tax on specified transfers to donees who are
    more than one generation younger than the
    donor.
   Imposed on certain inter vivos and @ death
    transfers.
   An additional flat-rate tax on top of any federal
    gift or estate tax that the donor or decedent
    might also owe on the transfer.
   The tax rate is the highest marginal estate tax
    rate.
          Skip Person Defined
   Skip person triggers the GST.
   Person who is two or more generations
    younger than the decedent.
   Unless lineal descendants are involved,
    second generation begins @ 37½ years
    younger.
    Transfers Subject to GST Tax
   Direct Skip – transfer directly to a skip person
    that is also subject to federal or estate gift tax.
   Taxable Termination – occurs when property
    passes to a person because of the termination of
    a trust.
   Taxable Distribution – occurs when the trustee
    of a trust makes a distribution of income or
    principal to a skip person (that doesn’t qualify as
    a direct skip or taxable termination).
     Exemptions and Exclusions
   Annual Exclusion
   Educational and Medical Expense
    Exclusion
   Lifetime Exemption
GST Lifetime Exemption Chart
   2002-2003   $1,060,000 + inflation
   2004-2005   $1,500,000
   2006-2008   $2,000,000
   2009        $3,500,000
   2010        No GST tax
   2011 +      $1,060,000 + inflation

				
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posted:11/10/2011
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