Death and taxes
If you”™re going to die ”“ and let”™s face it, who isn”™t? ”“ now”™s a good time to do it. At least as far as estate taxes are concerned.
When the Bush tax cuts expire after Dec. 31, taxes will be going up across the boards and that includes on estates.
Last year, under the sunset provisions of the cuts, the ceiling for an exemption on federal estate taxes was $3.5 million with a maximum rate of 45 percent. On Jan. 1, the ceiling for the exemption will be lowered to $1 million, with a maximum rate of 55 percent. (This year there is no estate tax, hence the fiscal advantage of dying now ”“ for your heirs.)
When the joint credit for a married couple is $2 million ”“ instead of the $7 million it was in 2009 ”“ a lot more people in this well-to-do area will be paying estate taxes, says White Plains attorney Jessica Galligan Goldsmith, named a 2010 New York Metro Super Lawyer and one of the top 25 attorneys in Westchester for her work in the fields of estate and business-succession planning.
Add to this state taxes on estates valued at more than $1 million in New York and more than $3.5 million in Connecticut, and you have some serious damage, experts say.
The Bush tax cuts may ultimately be reinstated. But nothing is certain, particularly in an election year. So what”™s a person to do if he doesn”™t want to see his home or small business sold to cover the cost of estate taxes?
“A lot of people are going to go out and get life insurance,” says Jeffrey Katz, partner in charge of the Tarrytown office of WeiserMazars, a global accounting and audit firm.
Actually, you set up a trust, Goldsmith says, which purchases life insurance with the trust as beneficiary. That way when you die, your estate has the necessary liquidity.
Or if you want to leave your life insurance to your spouse, Katz says you can take out a second-to-die policy, which kicks in when the surviving spouse dies and covers the estate taxes.
This is, of course, assuming that you qualify for life insurance, which not every older person does.
The charitably minded might want to consider giving money away now. You can give away up to $13,000 a year ”“ or $26,000 per couple ”“ without paying a gift tax.
Plus, Goldsmith says: “There is no federal generation-skipping tax this year, so it”™s a good year to give money to the grandchildren.”
For those who”™ve amassed a certain amount of wealth, establishing a private foundation may be an option. You have to give away only 5 percent of its assets each year, thereby enabling you to build its wealth, and there are tax benefits, although not as many as for a public foundation.
“It has to be analyzed according to each individual situation,” says Dennis B. Kremer, a partner in the White Plains accounting firm of Gettry Marcus Stern & Lehrer. “No one solution fits all.”
What everyone should do with so much uncertainty in the offing, he says, is consult an estate planner now.
The clock is ticking.