Estate and Capital Gains Tax Planning


Estate & Capital Gains Tax Planning


I work with many families that work their whole lives to provide for their families, are conservative savers, and provide a nice livelihood for their families during their retirement years. In addition, nearly every family that I work with feel a certain sense of satisfaction to know that they are leaving behind a legacy for their family.

Unfortunately, many families find that their inheritance is being reduced by unnecessary, costs, expenses, and taxes.


What is the Death Tax?


The death tax is what many people think of when they hear about stories of an estate being ravaged by unnecessary taxes. The death tax, formally referred to the Federal Estate and Gift Tax, is a tax that assessed on estates with a gross value above $5.45 million (including life insurance death benefits) on the date of death. For estates that are valued about this amount on the date of death, the IRS assesses a tax on the non-exempt portion at a top tax rate of 40%. For estates under this amount, the federal estate tax simply does not apply.

However, there is good news for married couples. If you are married, you can pass an unlimited number of assets to your surviving spouse with zero tax liability. For example, if you die owning $10 million and you pass all $10 million to your spouse, then there is no federal estate tax liability. However, you have essentially wasted the first spouse to die’s federal estate tax exemption. The federal estate tax allows the surviving spouse to use the unused estate tax exemption of the first spouse to die through an election called portability. This allows the surviving spouse to receive a $10.9 million exemption from the federal estate tax! However, an important distinction. This exemption does not apply to non-US citizen spouses.

Given the developments in the recent years regarding the federal estate tax, there are very few families that need to worry about the federal estate tax. However, that is not to say that the law won’t change in the future. Although, for families that will be impacted by federal estate taxes there are several estate planning strategies to limit and even avoid the federal estate taxes including gifting strategies, charitable foundations, grantor retained annuity trusts (GRATs), and irrevocable trusts. For a more complete discussion on these items, contact our office for a discussion on estate tax avoidance strategies.


Income Tax Planning

When people come into my office to discuss estate planning rarely, if ever, does the term “income tax planning” ever enter their mind. However, it should! In addition, it is one of the most often overlooked and forgotten portions of someone’s estate plan. Failure to appropriately engage in income tax planning can result in your loved one’s inheritance being subject to unnecessary income capital gain taxes.

Most people, especially if you are on this page, are familiar with the term “step-up in tax basis.” Tax basis is a tax term that usually refers to the amount of the money that you paid for an asset that has appreciated in value. This value is used for calculating your tax liability when you sell that asset for purposes of calculating capital gains taxes. However, when an asset passes at death, the recipient of that asset receives a step-up in tax basis. This means that the new owner of that asset has a new tax basis for that asset, and the tax basis is normally the amount that the asset is worth on the date that it was inherited. This allows the recipient of that gift to sell the appreciating asset for little or no capital gains tax liability.

For this reason, many people are concerned with protecting the step-up in tax basis for their children and other heirs. However, when it is a surviving spouse, the surviving spouse only receives a step-up in tax basis equivalent to ½ of the asset that he or she owned with the first spouse to die. Therefore, the surviving spouse does not receive a 100% step-up in tax basis.

But wait a minute! There are legal strategies that would allow the surviving spouse of the first spouse to die to receive a 100% step up in tax basis for the asset that was owned jointly with the first spouse to die. This could have the result in the surviving spouse selling that asset which had been appreciating in value with $0 capital gains tax liability!

Among us lawyers, this is referred to as the Tennessee Community Property Trust. Due the beneficial tax treatment, many of my clients find this type of planning very advantageous!

Call Estate and Income Tax Planning Attorney Daniel Perry

Many people just do not realize that estate planning includes appropriate tax planning strategies. In addition, just because you do not have a taxable estate today, does not mean you will not leave behind a situation for your children and loved ones that involves a high tax burden. It is for this reason that you should not just hire a competent estate planning attorney, but also a tax attorney that knows the ins and outs of the Internal Revenue Code to advise you on all the potential pitfalls of any propose estate planning strategy.

During your first meeting with our attorneys, you will be asked what you want to happen with your assets when you are gone. At this point, once our attorneys have a general understanding of what you are trying to accomplish, we will propose the best way for you to achieve your goal while ensuring that tax burden for your estate and for your children and loved ones is limited or avoided.

With Fidelis Law 100% Unconditional Money Back Gurantee, You Can't Go Wrong! Call Our Franklin, Tennessee Office Today at 615-490-0477 to get started


Daniel A. Perry
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Focused on helping seniors, individuals with disabilities and small business owners make informed decisions.