Estate Tax Planning

Carlin & Associates, P.A., will provide thorough analysis of your estate to help you create a plan that will minimize or eliminate state and federal estate taxes. Below is a general explanation of estate taxes.

The Economic Growth and Tax Relief Reconciliation Act of 2001, altered the amount that may be transferred after death without having to pay transfer taxes. It is a complicated law, but to summarize and simplify the relevant provisions, the amount that can be transferred after death without paying federal estate taxes differs depending on when the individual dies. The amount that can be transferred without the payment of estate taxes is as follows: the years 2006 through 2008 - $2 million; the year 2009 - $3.5 million; the year 2010 - the estate tax is repealed, but the legislation has a sunset provision, which leaves the exemption unknown at this time for the year 2011 and thereafter. Maine recently further decoupled the Maine estate tax system from the federal system by utilizing a different applicable exclusion amount, which means that a Maine death tax may now be due even if no federal tax is due. Maine's exclusion amount will remain at $1 million until a new exclusion amount is announced.

Estate/Gift Taxes. Starting in 2006, subject to a lifetime unified exemption in the amount of $2 million and certain other deductions and exclusions, the United States effectively assesses a tax on all transfers of assets by gift or devise, with rates that cap at 46%. The rate of tax will depend on the amount the value of the estate is in excess of the unified credit amount; and the State of Maine taxes on all transfers at death in excess of $1 million at death.

Unified Credit. As noted, for the year 2006, there is no transfer tax due on the first $2 million dollars of any estate for federal taxes and for the first $1 million for State taxes.

Unlimited Marital Deduction. Generally, transfers to a spouse, whether lifetime or testamentary, are entitled to a transfer tax deduction in the full amount of the value of the property transferred, with the net result that most property can pass between spouses without being subject to the transfer tax. This deduction is subject to certain requirements, all designed to ensure that the property transferred will be subject to transfer tax in the estate of the transferee spouse (if not consumed or spent). The problem with relying wholly on the marital deduction is that it wastes the "unified credit" of one spouse.

Annual Exclusion. A transferor may also claim an unlimited number of annual exclusions under the Federal Estate Taxes for lifetime gifts of approximately $12,000 (this amount eventually increases with inflation) to an unlimited number of donees each year. This is one of the most useful devices for couples with estates in excess of two million dollars or individuals with estates in excess of one million dollars to minimize taxes.

• (1) Gift Splitting. With the filing of a gift tax return, a married transferor and spouse may exclude up to $24,000 per donee per year.
• (2) Present Interest Requirement. To qualify for the annual exclusion, a gift must be of a "present interest" and must be to an individual. Gifts to trusts are treated as gifts to the beneficiaries to determine whether the gift is of a present interest. Gifts to a trust to benefit a minor may qualify as present interest gifts if certain criteria are met.

Generation Skipping Transfer Tax. A Generation Skipping Transfer Tax (GST tax) is imposed on transfers that skip or bypass a younger generation entirely, such as a transfer to a grandchild that "skips" the generation of the donor's children (the grandchild's parents). The GST tax is extremely punitive.