Estate Tax Changes for 2011-2012 (& 2010)
Apparently Congress was following my posts and decided to wait until the last minute to make changes to the federal estate tax system. Three significant changes to be aware of from the TRA 2010:
Exemption Amount Change - While $1 million was scheduled for the exemption amount for 2011 the new act implements a $5 million exemption per person. Thus, a married couple could pass on $10 million without worrying about federal estate taxes. With these type of numbers, there will be very few estates that will have any federal estate liability. In addition, for those individuals that passed in 2010, their estate can choose either the old 2010 "no estate tax - carryover basis" rules or the new "$5 million exemption - stepped-up basis".
Portability - In somewhat of a surprise, one of the bigger changes was the addition of the idea of portability. The idea is essentially if your spouse doesn't "utilize" their exemption amount, the surviving spouse can take advantage at their death. Previously, unless the assets were properly titled, it was possible that the first-to-die spouse may not use their exemption and it is lost forever for no one to use. Portability concept avoids that situation. However, it creates different "issues" that arise out of second marriage situations.
Gift Tax Exemption - The lifetime gift exemption was matched to the federal exemption amount as well ($5 million). Thus lifetime and/or death transfers up to $5 million are permitted.
Exemption Amount Change - While $1 million was scheduled for the exemption amount for 2011 the new act implements a $5 million exemption per person. Thus, a married couple could pass on $10 million without worrying about federal estate taxes. With these type of numbers, there will be very few estates that will have any federal estate liability. In addition, for those individuals that passed in 2010, their estate can choose either the old 2010 "no estate tax - carryover basis" rules or the new "$5 million exemption - stepped-up basis".
Portability - In somewhat of a surprise, one of the bigger changes was the addition of the idea of portability. The idea is essentially if your spouse doesn't "utilize" their exemption amount, the surviving spouse can take advantage at their death. Previously, unless the assets were properly titled, it was possible that the first-to-die spouse may not use their exemption and it is lost forever for no one to use. Portability concept avoids that situation. However, it creates different "issues" that arise out of second marriage situations.
Gift Tax Exemption - The lifetime gift exemption was matched to the federal exemption amount as well ($5 million). Thus lifetime and/or death transfers up to $5 million are permitted.
However, while Congress did make some changes, at the last minute, it is only temporary as the provisions will expire December 31, 2012. I suspect I'll have to re-post my comments from last month about the "what if" scenario, which include the scheduled return of a $1 million exemption. On the night of the BCS national football championship, it is appropriate to describe this move by Congress as a "punt".
Comments
The money could be moved to a POD account, then withdrawn after death, and then "gifted" to siblings, keeping it out of the probate process. If I understand the laws, a married couple could gift up to $26k to each sibling tax free.
Also, which state will heirs be responsible for inheritance tax if the deceased estate is in Iowa, but all heirs live in Nebraska? or will both states charge some type of tax on inheritance.
You could move money prior to a parents death in this fashion. "Is it wise?" you ask. Depends on the situation. If I understand your question, you are putting the funds in a POD account, then making a gift after the account transfers to the beneficiary at death. If there are any creditors of the beneficiary, they could garnish those funds first. Or maybe the beneficiary changes their mind about the gift to the siblings.
For your second question, the estate of the decedent will be subject to the tax. Actually, in Iowa, the beneficiary is taxed, but the executor is responsible for collecting the tax and paying it to the state.
It depends on a few things about saving taxes. Assuming those represent most of your estate, you won't have to worry about federal estate taxes. If you are an Iowa resident, leaving it to your children doesn't create any Iowa inheritance taxes. Thus, "death taxes" would not be an issue. If your estate consists of much more than these properties, you may need more analysis.
However, capital gains tax (income tax) is a tax to be aware of in many situations. Assuming the land is sold, there may be taxes due at that time. However, you need to do a little planning to make sure you maximize the tax savings opportunities. I would encourage you to contact legal counsel to sort through some of those issues.
Estate less than $500K
thank you!@
We just don't like Michigan, so we just tax anything that involves assets going to Michigan.
Just kidding. As the assets involve those located in Iowa, by an Iowa decedent, Iowa law applies and not the law of where the beneficiary lives. Thus, your aunt's estate in Iowa is paying the tax for the property that you are receiving.
I was probably here, sitting at my desk.
You don't have to use the attorney that gave that original advise. Any attorney licensed in Iowa can handle the probate proceedings, regardless if they did the will. And you can switch attorneys at any time as well. (Hopefully you negotiated fees.)
I'm still here at my desk...
Several detailed questions/anwsers involved in that post. Your facts are somewhat similar to the case/post I have here at http://www.iowaestateplan.com/2012/07/old-trust-new-trust-iowa-trust-code.html
To give you a proper answer, and avoid ethical problems, it would be necessary to: (1) get a copy of the trust (2) establish an attorney-client relationship. (In other words, it isn't an easy answer.)