With our favorite season almost coming to an end, it’s important to educate ourselves on estate taxes. Of course death is not our favorite topic to discuss nor is it something that we want to think about when receiving our tax return, however planning for the future is never a bad idea.
Benjamin Franklin once said, “In this world nothing can be certain, except death and taxes.” This quote draws on the actual inevitability of death to highlight the difficulty in avoiding tax burdens. But, if you plan ahead and use the proper resources, estate taxes will not be too much of a burden.
Estate tax is known to be a tax on your right to transfer property after death. This tax consists of an accounting of everything you may own or have certain interests in at your date of death. The fair market value of these items are used which then becomes your gross estate. Once your gross estate is accounted for, certain deductions such as: mortgages and other debts, estate administration expenses, property that passes to surviving spouses, and qualified charities are allowed in arriving at your taxable estate. After the net amount is calculated, the value of lifetime taxable gifts is added to this number and the tax is computed. The tax is then reduced by the available unified credit. Being that I just bombarded you with estate tax lingo and probably lost you after I said the word “death”, let’s talk about how to reduce estate taxes.
Setting up a QTIP trust, and no I don’t mean a piece of cotton, and a Bypass Trust can postpone the payment of taxes until both spouses in a marriage have died. If you die first but want to determine who receives the trust property after your spouse dies, you may want to consider setting up a Qualified Terminable Interest Property trust, or as we like to call it, a QTIP trust. This trust allows you to put property into the trust however, YOU, not your spouse, can specify who receives the remaining property in the trust after your spouse dies. A QTIP trust enables you to designate what happens to the leftovers of the trust instead of leaving it to the option of your spouse. This may be a great option if you’re on your second marriage. Let’s say that you and your current spouse are both on your second marriage and each have children of your own from the first marriage. To put it nicely, you aren’t too fond of your spouse’s children and the word “freeloaders” comes to mind when their names come up in conversation. But, your spouse of course thinks of them as angels. In this situation, do you really want your spouse to decide what happens with any leftovers from your estate upon his or her death? I’m not thinking so.
Another option would be setting up a Bypass trust, also known as a “B” trust. This trust shelters property from estate taxes and “bypasses” the property from your spouse to someone else, such as your child or children. But, guess what? Your spouse can still benefit from the trust. Even though the trust is for the sole benefit of your child, your spouse, while living, can still benefit from the trust assets. Being that your spouse never actually takes possession of the property, he or she is never considered to be the property owner. This means that he or she never has to include the property in his or her estate.
So, as Franklin once said, death and taxes are inevitable but here at WFP law we can ensure you that we can help reduce the burden of estate taxes. It’s a wild world and if you don’t prepare your trusts properly, the IRS may not honor them. So, the real question is; are you protected? Come in today for a free consultation!
For more information on successful Florida estate planning and asset protection techniques, please contact the South Florida law firm of Wild Felice & Partners, P.A. at 954-944-2855 to schedule your free consultation.
