HOW CAN MY ESTATE PLAN LOWER THE FEDERAL TRANSFER TAX LIABILITY?
Every person living in the US can shelter $5,000,000 of assets from federal estate, gift and generation skipping taxes. This sum is indexed for inflation.
Massachusetts permits residents to exempt $1,000,000, creating a significant discrepancy between federal and state law.
For Federal purposes a heterosexual couple can avoid all state and federal estate taxes on the first death. In Massachusetts, a same-sex couple can defer all state (but not federal) taxes on the first death. However, the time to pay the piper (Uncle Sam and Commonwealth of Massachusetts) occurs when the second spouse dies.
A good estate plan will ensure that both Massachusetts and Federal exemptions are not wasted and that, where possible, there are no estate taxes when the first spouse dies, by incorporating the following techniques:
(1) a trust that takes advantage of the federal and state exemption of the spouse who has died first, while still providing for the surviving spouse during his/her lifetime,
(2) a gift program to take advantage of the current $14,000 per year per person gift tax exclusion,
(3) an irrevocable trust to handle and manage property outside of your estate (such as life insurance), so that the property is not part of your estate at the time of death, and
(4) proper beneficiary designations for your retirement assets so that your benefits can continue to grow income tax free for as long as is permissible.
Other Frequently Asked Questions:
What is an estate plan?
What is a taxable estate?
What is probate property?
What is probate administration?
Who should have an estate plan?
How can my estate plan lower the federal transfer tax liability?
How can I plan for long term care and disability of a child or adult?