CPA Estate Planning Tips for National Estate Planning Awareness Week

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IMGCAP(1)]National Estate Planning Awareness Week is October 19 to 25, and two New York CPAs have some advice for estate planners and their clients.

Fred Slater, CPA of MS 1040 LLC, pointed out that only approximately 3,700 estates, or 0.12 percent of the total, are expected to owe federal estate tax this year.

“Lifetime gift and estate tax exclusions have risen slightly, to $5,430,000 in 2015, while the maximum estate and gift tax rate remains 40 percent,” he said. “The applicable exclusion amounts will continue to be indexed for inflation annually, and the portability provision that allows couples to take full advantage of each other’s unused federal estate and gift tax exclusion amounts, without having to create complicated trusts or wills, remains effective.”

Ellen Minkow, CPA, of MS 1040 LLC, believes the estate tax is one of the most complex and controversial parts of the tax laws. “While many label it an unfair death tax on already-taxed money, proponents believe it’s one of the only ways of addressing rising inequality in wealth levels within the nation,” she said. “The government collected almost $12.7 billion from estate tax filings last year making it very worthwhile for people to consult with a CPA who knows more about estate tax rules and avoiding or minimizing any tax you owe.”

Slater and Minkow offer the following estate tax tips:

Take advantage of the unlimited marital deduction. If your spouse is a U.S. citizen, you can leave any amount to him or her with no federal estate tax hit. If you are a U.S. citizen, your spouse can do the same, but not all if your estate exceeds the exemption!

Take advantage of the portable estate tax. exemption. You can direct the executor of your estate to leave any unused federal estate tax exemption to your surviving spouse.

Make bequests to IRS-approved charities. You might want to change your estate planning documents to direct the executor to give away more to IRS-approved charities in order to get your taxable estate down to the current $5.43 million per individual estate-tax-free ceiling.

Married couples can get the benefit of two individual exemptions, so in 2015 the total exemption per couple will be nearly $11 million. Put another way, you and your spouse can together leave up to $11 million to relatives and loved ones without any federal estate tax hit if you both die in 2015. If you leave more, there will be a federal estate tax bill to pay. But the taxable value of your estate is reduced by donations that the executor of your estate is directed to make to IRS-approved charities. Of course, increasing charitable donations to avoid the estate tax means leaving less to relatives and loved ones.

Make annual gifts to relatives and loved ones. Thanks to the annual federal gift tax exclusion ($14,000 for 2015), making annual gifts up to the exclusion amount will reduce the taxable value of your estate without reducing the lifetime federal gift tax exemption. The same holds true for gifts by your spouse.

Pay school expenses (not room and board) or medical bills for relatives and loved ones. You can give away unlimited amounts for these purposes without reducing your federal estate tax exemption--as long as you make the payments directly to the school or medical service provider. The same holds true for gifts by your spouse.

Give away appreciating assets to relatives and loved ones while you are still alive. Thanks to the federal gift tax exemption for 2012, you can give away up to $5.12 million worth of appreciating assets (stocks, real estate, etc.) without triggering any federal gift tax hit. So can your spouse. This can be on top of cash gifts to relatives and loved ones that take advantage of the annual exclusion and on top of cash gifts to directly pay college tuition or medical expenses for relatives and loved ones.

Set up an irrevocable life insurance trust. As you may know, life insurance death benefit proceeds are usually federal-income-tax-free. However, the proceeds from any policy on your own life are included in your estate for federal estate tax purposes if you have any incidents of ownership in the policy. It makes no difference if all the insurance money goes straight to your beloved aunt.

It does not take much to have incidents of ownership. If you have the power to change beneficiaries, borrow against the policy, cancel it, or select payment options, you have incidents of ownership. (The preceding is not a complete list of things that count as incidents of ownership.)

This unfavorable life insurance ownership rule can cause federal estate tax exposure for people who believe they have none.

Fred L. Slater, CPA , a member of MS1040 LLC in New York City since 2006, has been a sole practitioner for the prior 25 years. He has been a member and chair of the Relations with the IRS Committee for the New York State Society of Certified Public Accountants (NYSSCPA) for almost 25 years. Ellen J. Minkow, CPA, is president of her own accounting firm, Ellen J. Minkow CPA PC and a member of MS 1040 LLC. She is the past chair of the Relations with the Internal Revenue Service Committee of the New York State Society of CPAs and is a member of its Manhattan Bronx Chapter.  She also served on a Society subcommittee, Rapid Response, which dealt with current and pending issues made by the IRS and other taxing authorities, and was a past member of the Society’s New York State Multistate Relations Committee.

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