2015 Estate Plan Update and Review

By Steven W. Tarta, Esq.
March 6, 2015
• Capital Gains Tax, Politics, Tax Exemption
• 0 Comments

FEDERAL ESTATE TAXATION:

1. The present Estate Tax Exemption Amount is increased to $5,430,000; this exemption amount may be reduced by certain lifetime gifts. The calculation of the taxable assets includes life insurance unless same has been transferred to a trust.
2. The Federal Estate tax rate is also forty per cent (40%).
3. The present law permits the surviving spouse to utilize, under certain circumstances, that portion of the deceased spouse unutilized tax exemption (portability) amount for both gift taxation and or estate taxation in addition the surviving spouses own exemption.

INCOME AND CAPITAL GAIN TAXATION:

1. The present highest current income tax rate is applicable to those with income in excess of $464,850 (single person) is thirty nine point six per cent (39.6%).
2. The Alternative Minimum Tax exemption is currently $83,400.
3. The long term capital gains tax is now twenty per cent (20%), with a surtax of three point eight per cent (3.8%) applied to incomes in excess of $464,850.

NEW JERSEY ESTATE TAXATION:

1. New Jersey Inheritance Tax is imposed on every estate and calculated on the relationship of the decedent to the beneficiary. For example, all parent to child transfers are referred to as “Class A” transfers and totally exempt from New Jersey Inheritance taxation; while other class of beneficiaries are subject to Inheritance taxation.
2. New Jersey Estate Tax is computed on all assets in excess of $675,000 notwithstanding the relation between decedent and beneficiary.

GIFTS:

1. The “tax free” annual exclusion gift remains at $14,000 per year, per recipient.
2. The present “Lifetime Exemption” before federal taxation commences is now also $5,430,000.
3. The during life Federal tax rate on gifts in excess of $5,430,000 is forty per cent (40%).

ESSENTIAL ESTATE PLANNING DOCUMENTS:

1. Revocable Trusts are extremely valuable estate planning documents which significantly reduce Probate expense. Also, Revocable Trusts permit, among many other advantages, the private administration of an estate because, unlike wills, these trusts are not submitted to the Probate Court, therefore, they do not become “public”.
2. Digital Assets, a frequently overlooked issue, has recently gaining legislative attention. Often the website “terms of service” agreement include provisions addressing this issue but do not address the issue comprehensively. The estate planning client should appoint a “Digital Fiduciary” who will be given the right of access to digital information such as usernames and passwords.
3. Foreign Accounts is an area that has received a great deal of attention by the U.S. Treasury Department. All foreign accounts with a value in excess of ten thousand dollars ($10,000) must annually report all earned interest income; also, accounts which earn no income but hold the equivalent of fifty thousand dollars ($50,000) at year end or seventy five thousand ($75,000) at any one time during one calendar year must be reported. Severe penalties are imposed for noncompliance in this area. Foreign banks have agreed with the U.S. Government to report the existence of such accounts to the Internal Revenue Service commencing March 2015.
4. Durable Powers of Attorney have become standard and necessary documentation in all estate plans.
5. Health Care Proxies are necessary estate planning documents to appoint a Health Care Agent to represent you and communicate medical decisions to a health care provider upon the occurrence of your inability to communicate.
6. Life Insurance is an estate taxable asset, with few exception or unless owned by a trust. Both Federal Estate Taxation and New Jersey Estate Taxation, consider life insurance policy ownership a taxable asset, however this taxable asset can be eliminated by comprehensive planning.
7. Title to Jointly Owned Property- Real Estate or Personal Property must be reevaluated to determine if joint ownership is appropriate, or if this type ownership creates additional but avoidable taxation in either or both spouse’s estates.
8. Property transfers must be reviewed to determine if a Gift Tax return should be filed with the Federal Government.
9. Funding of trusts must be reviewed to insure Probate expense has been significantly reduced and Estate Taxation has been minimized.