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Avoiding Estate Taxes

June 17, 2016Estate Planning

estate taxesA primary goal of estate planning, for most clients, is minimizing or avoiding estate taxes.  There is no Kansas estate tax as of 2016, but that is not true for every state.  So check with your state revenue department to find out for sure.  Regardless, the current federal estate tax rate is 40 percent.  Now, if your gross estate does not exceed $5.49 million, as of 2016, then you will not be required to pay estate taxes.  If you cannot take advantage of the estate tax exclusion, then it will be important to find a way to avoid estate taxes.

The history of estate taxes in our country

Federal estate taxes have been around since 1916.  In response to the imposition of estate taxes, individuals began transferring their assets to their children, grandchildren and others, in an attempt to reduce their taxable estate.  Consequently, the federal government fashioned the gift tax in order to put a stop to the rampant estate tax avoidance.  In 1976, the estate tax and gift tax were combined.

The estate tax exemption through history

The estate tax exemption amount has not always been this significant.  In 1997, the estate tax exemption was only $600,000. The exemption increased to $2,000,000 in 2008. Currently, in 2016, the estate tax exemption is $5.49 million but is subject to change each year. This exemption, coupled with the gift tax exclusion, referred to as the “unified credit,” makes it much simpler for most estates to avoid estate taxes altogether.

The estate and gift tax exemption or “Unified Credit”

With the unified credit, you can either leave or give away up to $5.49 million in assets from your estate, without any estate or gift tax being imposed.  As long as the value of your estate is less than this amount, you can avoid federal estate taxes completely.  The annual gift tax exclusion is $14,000 per recipient for each individual or a total of $28,000 per recipient when married couples combine their exclusions. If you exceed the $5.49 million lifetime exclusion amount, then your estate will be assessed taxes in the amount of 40% of the excess amount.

The lifetime credit is portable

This lifetime credit is also “portable” for spouses.  This means that if your estate does reach the full exemption amount, your spouse can benefit from the remainder of that exemption.  For example, if your estate is worth $2 million when you die, your spouse will be able to use the remaining $3.45 million towards his or her estate.

The unlimited marital deduction can eliminate estate taxes

There is another way to avoid paying estate taxes if you are married.  Simply leave all of your assets to your spouse.  No estate taxes are imposed on those assets upon your death.  Instead, the taxes would only become due only upon the surviving spouse’s death.  This marital deduction is unlimited, so you can essentially leave all of your assets to your spouse tax-free.

How to use a generation-skipping trust to avoid estate taxes

A “generation-skipping trust” is basically a second-generation “bypass trust.” The gift of the income created by the assets is separate from the gift of the assets themselves. This means you can include provisions in your trust that transfer a specific amount of property to your grandchildren.  Meanwhile, the income from those assets is distributed to one or both of their parents.  This can be established for a specified length of time or until the parents’ death. After the parents’ death, the grandchildren would then receive the income from those assets as well as, gain control over the assets themselves.

If you have questions regarding avoiding estate taxes, or any other estate planning matters, contact Gaughan & Connealy for a consultation either online or by calling us at (913) 262-2000.

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Chris Gaughan

Chris Gaughan

Known for his ability to provide a wide-range of custom estate planning services to his clients, with a primary focus on helping them provide for the security of their loved ones, reduce estate taxes, and minimize or avoid the costs and delays of probate, Mr. Gaughan prides himself on the lifelong relationships he forms with each and every one of his clients.
Chris Gaughan

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“Chris and his staff were awesome to work with. I felt like I was their only client with the personal attention and time they spent with me setting up a trust. Chris did an excellent job of making sure I understood everything I needed to and things were being set up for our families specific needs and desires. I look forward to having Chris continue to be our estate planning attorney.”
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“For about 10 years my husband and I kept saying, "we need to prepare a trust or a will. We had already planned and paid for our funerals but trying to figure out the will or trust was overwhelming to us. We received an invitation in the mail to attend a seminar. After meeting with Chris we both agreed that Chris and his firm were whom we wanted to execute our Trust documents.”
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“My wife and I took advantage of the free evening program put on by Gaughan and Connealy back in 2013 and later hired Chris Gaughan to do our estate planning. First thing that sold us was not only Chris's professionalism, but his knowledge and his passion for what he does. The process was very easy and thorough. Chris brought up scenarios/issues that were unforeseen but were important to have in our plans. ”
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