Our services include planning designed to reduce or eliminate a variety of taxes, notably including both transfer taxes (estate, gift, and generation-skipping transfer taxes) and income and capital gains taxes.
Estate, Gift and GST Taxes
Assets which pass to children or other non-spousal beneficiaries at death are subject to what is known as the “estate tax.” In order to prevent avoidance of the estate tax by making pre-death transfers, a corresponding tax called the “gift tax” is also imposed on the value of lifetime gifts when they exceed the amount of an annual exclusion. Beyond these forms of tax, an additional tax called generation-skipping transfer (or “GST”) tax is imposed for any transfer to a beneficiary who is more than one generation or 37.5 years younger than the donor. However, by law each individual is allowed a lifetime exemption which can be applied to prevent incurring any of the foregoing types of tax for transfers up to a specific amount. For our purposes here, we can simply refer to this as the “lifetime exclusion amount.”
Not long ago, the “lifetime exclusion amount” (i.e., the dollar amount of asset transfers exempted from the estate and/or gift tax) was only $600,000, meaning that all assets of any kind passing to a beneficiary by way of either inheritance or gift in excess of that amount would be subject to taxation. Furthermore, the tax rates were quite high, with the top rates typically in excess of 50%! This combination of circumstances created a powerful incentive for careful estate planning, and estate planning attorneys developed a range of tools and techniques designed to minimize or eliminate estate and gift tax liability.
Over the past couple decades, there have been a number of changes to the estate and gift tax rules. Currently, the “lifetime exclusion amount” has been temporarily increased to an amount which is $10 million plus an adjustment for inflation, and the top estate tax rate decreased to 35%. However, as has often been true in recent years, these changes were passed subject to “sunset provisions,” meaning that the exemption and rates will revert back to what they were under prior law beginning on January 1, 2026 (when the “lifetime exclusion amount” will revert back to $5 million plus the inflation adjustment and the top tax rate 55%).
Frequent recent changes in estate, gift, and generation skipping transfer tax laws combined with “sunset provisions,” along with the volatility of the modern political climate, have made planning more challenging, but it has in many cases also created unique opportunities. Furthermore, we would contend that the uncertainty regarding what will happen with these laws going forward is likely to continue, and that it makes skillful planning more important than ever.
Income and Capital Gains Taxes
Techniques and strategies designed to minimize estate and gift tax liability generally involve the need to avoid assets being included in a person’s “taxable estate.” While entirely appropriate in order to achieve the objective of that type of planning, this often requires trade-offs which are not particularly favorable from the perspective of minimizing income and capital gains tax liability.
Since the recent increases in the “lifetime exclusion amount” have made planning for estate and gift taxes less of a concern for many people, such trade-offs have become less necessary. So, in general, another effect of the current legal climate has been an increase in the importance of income and capital gains tax considerations in estate planning.
We invest a significant amount of time and energy in order to remain current with the best approaches to minimize income and capital gains tax, both for you and for your intended beneficiaries. Some of these approaches may be “behind the scenes” in the sense that they primarily involve technical details such as the options we recommend or the specific language we make sure to include in planning documents. However, we are also prepared to assist with planning techniques which are purposefully designed, entirely or at least in significant part, to minimize federal and/or state income and capital gains taxes.
Whether your concern involves estate, gift, or GST tax, or income or capital gains taxes, we can offer strategies to minimize or eliminate them, and maximize the value of your estate and the legacy to your family and loved ones. Contact us today or schedule an initial consultation to begin the process.