As a further reminder, I want to reiterate that other estate planning options are available to save taxes and achieve other goals and objectives. These options include, but are not limited to, the creation or implementation of the following:
● Revocable Trust Revocable Trusts can be beneficial because the assets that are owned by the trust at death pass to the beneficiaries named in the Revocable Trust (or to trusts for their benefit) without the need for probate. Revocable Trusts are also more private and allow a successor trustee to step in and manage the trust should incapacity become an issue. Often, Revocable Trusts can save time, court costs, and attorneys' fees, and they have other benefits as well. In addition, a Revocable Trust (as opposed to a Will) makes it harder for a person to win a lawsuit challenging the validity of the trust instrument.
● Tax-Planned Wills or Revocable Trust Under Federal law, spouses have the opportunity to create a trust, commonly referred to as a "bypass" trust, upon the first spouse's death, and thereby save considerable Federal estate taxes upon the surviving spouse's death. Such a trust can save as much as 35% of the value of the assets in the trust under current law. When a married couple's estate is large enough, a marital trust can be created as well. Both the bypass trust and the marital trust can be created within a revocable trust agreement or within each spouse's Will. The property of these trusts cannot be distributed to new spouses, new children, or to creditors, but are instead earmarked for the children or other beneficiaries of the spouse who died first.
● Gifts to 529 Accounts College savings accounts known as 529 accounts (after Section 529 of the Internal Revenue Code) can be an excellent way to remove property from one's estate and to save for a child's college education. The main advantage is that the earnings and most withdrawals are income tax free. Importantly as well, gifts to a 529 account not only qualify for the $13,000 annual gift tax exclusion, but five years worth of gifts can be made now and be treated as being made equally over a five year period. That means a married couple can presently give $130,000 to each beneficiary. The investments in the 529 account are not subject to Federal estate taxes either (unless death occurs within the five year period in which case part of the gift will be subject to taxes).
● Making of Annual Exclusion Gifts Each year, any person can give to any other person as much as $13,000 in cash or other property without any gift tax consequences. A married couple, therefore, can give $26,000 each year to any one person. Over time, a considerable amount of property can be given away, none of which will be subject to Federal estate taxes upon death.
● Payment of Tuition Expenses or Medical Bills In addition to the $13,000 annual exclusion, payments can be made to the provider of education (such as a private school, college, or university) or for medical expenses (such as doctors' bills, medical insurance premiums, and prescription drugs) and none of the payments will be treated as taxable gifts. Importantly, though, the payments must be made directly to the provider, and if the payment is made to the student or recipient of the medical care, even as a reimbursement for payments already made, then the payment will be treated as a gift. The tuition and medical expense exclusions provide an opportunity for considerable amounts of wealth to be shifted to one's descendants or other beneficiaries without any transfer tax consequences.
