 |
Estate and Tax Planning |
|||||||||||||||||||||
|
Estate and Tax Planning |
|||||||||||||||||||||
|
To many people, Estate and Tax Planning seems a difficult and insurmountable task. Some assume that they don’t need to plan. Others are simply unaware of the significant perils and expenses that may face family members in the absence of proper planning. When false assumptions and misperceptions are cleared away, estate and tax planning may seem much easier. Our office offers comprehensive Estate and Tax Planning services in the following areas: The Basic Estate Plan Every dollar you pay in taxes is a dollar that isn't available to spend on something else or save toward your goals. Tax planning can show you how to take advantage of favorable provisions in the tax laws – and avoid pitfalls that could cost you unnecessary taxes. The “2005 Tax Planning Guide” should help. Be sure to contact us before acting on any of the general suggestions you read about in this guide. The tax rules are complex, and you will want to make sure that the strategies you use are right for your particular situation.
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
If you would like to review additional resources on estate and tax planning, please visit the estate and tax planning page at: The Basic Estate Plan Last Will and
Testament A Last Will is the heart of the estate plan. The Will details how you want your property divided among your family and heirs. It also names the Executor, the person who is to carry out your wishes, and the Guardian, the person you appoint to care for your minor children. A Trust is created for a variety of different reasons, including to care for elderly parents and minor children, to avoid probate and maintain privacy, and for tax avoidance purposes. For a summary on various trusts, read the article Protecting Your Future, reprinted with permission from MFS Investment Management™, ©2000. All rights reserved. Of course, every family's situation is different, and the recommendations contained within the article may not be appropriate to your situation. You should consult with our office before taking any action. (Clicking the link to the article will open Adobe Acrobat Reader, which will give you the opportunity to print the article or view it on-line. We strongly suggest that you print it in order to get the most benefit from this case study. If you don't have the latest version of Adobe Acrobat Reader on your system already, download it here free.) A Health Care Proxy and Power of Attorney allow for family members to lawfully make medical and financial decisions in the event that spouses or elderly parents are no longer able to do so. A Declaration of Homestead protects a principal residence against the claims of certain creditors up to $500,000. In Massachusetts, an estate of Homestead is an interest in real property designed to protect the possession and enjoyment of the owner or owner’s surviving spouse and dependent children against the claims of creditors by protecting the property from execution and forced sale, so long as such person occupies or intends to occupy such property as his or her principal place of residence. MGL c. 188. Upon filing a Declaration of Homestead the real property that serves as an individuals principal residence is protected against attachment, levy on execution and sale for payment of debts for legacies, to satisfy non-exempted debts, to the extent of Five Hundred Thousand Dollars ($500,000.00) for a regular Homestead under MGL c. 188 s. 1. For an elderly or disabled person Homestead the same protection applies up to Five Hundred Thousand Dollars ($500,000.00) under MGL c. 188 s. 1A. The following are exempt from Homestead protection: federal, state and local taxes, assessments, claims and liens; first and second mortgages held by financial institutions and others; any and all debts, encumbrances or contracts existing prior to the filing of the declaration of Homestead; an execution issued from the probate court to enforce its judgment that a spouse pay for the support of a spouse or minor children; where buildings on land not owned by the owner of a Homestead estate are attached, levied upon or sold for the ground rent of the lot whereon they stand. Click: Homestead Act Questions and Answers.
Advanced Estate and Gift Tax Planning Estate and Gift Taxes may be the least understood tax of all. Recent changes to the tax laws makes planning in this area extremely complicated. Many families find out too late that the government is often the biggest beneficiary upon the death of a family member. Many people do not realize that the estate tax bracket for taxable estates over $1,000,000 now starts at 37% and increases to 50% as the size of the estate increases. Taxable estates above the following effective exemption amounts are required to file estate tax returns and possibly pay taxes.
* The federal Estate Tax is repealed effective January 1, 2010 under The Economic Growth and Tax Relief Reconciliation Act of 2001. However, unless Congress sees fit to extend the repeal beyond the year 2010, under the "sunset provision" of the Act, the transfer tax system in effect prior to enactment of the new law will return in full force on January 1, 2011 - a possibility that individuals must factor into their planning. ** In 2002, the Massachusetts Legislature changed the estate tax to "decouple" it from the federal estate tax. For dates of death occurring on or after January 1, 2003, the Massachusetts estate tax, also known as the "sponge tax" is computed using the Internal Revenue Code in effect on December 31, 2000. Therefore, the 2001 federal act has no impact on the Massachusetts Estate Tax. click: New MA Estate Tax Warning: The Commonwealth of Massachusetts places an automatic statutory estate tax lien against all property, including any real estate, owned by the decedent at the time of his or her death. This lien constitutes a real estate title defect that must be cleared before financing or sale can occur. This lien exists whether or not the estate exceeds the Massachusetts Estate Exemption Amount ! So even small estates must address this lien issue in order to clear title to real estate. See below for additional information. Estate and Gift Tax planning continues to be critical for individuals with larger estates. Gifts during life will continue to be subject to Gift Taxes even after the repeal of the Estate Tax in 2010, and the lifetime cumulative Gift Tax Exemption remains at only $1,000,000 (for year 2002 and thereafter). Before making any recommendations or taking any action, we analyze both the income and estate tax consequences. We want to make sure that total taxation is minimized and that in accordance with your wishes, your children and heirs receive the maximum after-tax inheritance possible. Sophisticated estate tax planning vehicles offered by this office include:Living Trusts with "AB"
Marital/Credit Shelter Provisions The new Roth IRA can also be a very effective Estate Tax Planning Tool. Because the Roth IRA is an income tax-free (as opposed to tax-deferred) vehicle and there are no requirements which mandate minimum distributions at any point, Roth IRA assets can continue to grow income tax-free even beyond the owner’s death. Therefore, for those who qualify, the Roth IRA offers a very special and unique opportunity for parents to provide for a lifetime of "tax-free benefits" for themselves and their heirs. return to top |
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Estate Administration & Post-Mortem Planning Avoidance of probate is generally a significant estate planning goal. However, this is not always possible or practical. The purpose of administration of your estate is to ensure that your wishes as defined in your Last Will are carried out by your Executor. In addition, there are many planning alternatives and tax elections that need to be decided post-mortem. Several of these include:
In addition to issues relating to Estate Administration, families need to be aware that pursuant to MGL c. 65C s. 14, the Commonwealth of Massachusetts places an automatic statutory estate tax lien against all property, including any real estate, owned by the decedent at the time of his or her death. This lien constitutes a title defect that must be cleared before financing or sale can occur. This lien exists whether or not the estate exceeds the Massachusetts Estate Exemption Amount ! So even small estates must address this lien issue in order to clear title. The lien is cleared by the filing of an Estate Tax Return (with Form M-4422 in certain instances) with the Department of Revenue and the recording Form M-792, that is signed by the Commissioner of the Department of Revenue, at the appropriate Registry of Deeds; or for dates of death on or after January 1, 1997 but before January 1, 2003, an affidavit of the Executor, subscribed to under the pains and penalties of perjury, recorded in the appropriate registry of deeds, and stating that the gross estate of the decedent does not necessitate a federal estate tax filing; or for dates of death on or after January 1, 2003, an affidavit of the Executor, subscribed to under the pains and penalties of perjury, recorded in the appropriate registry of deeds, and stating that the gross estate of the decedent does not necessitate a Massachusetts estate tax filing. The alternatives and tax elections can have a significant impact on your children’s inheritance. Proper administration and post-mortem planning can avoid expensive will contests and the payment of unnecessary income and estate taxes and administrative costs. Therefore, it is important that your Executor have the professional advice necessary for expedient and trouble-free estate administration. Our office can provide the necessary professional guidance.
The simple truth is that many people pay more taxes than necessary. We are guided by this landmark court case concerning our obligations to the government.
Our office can review your tax returns and make recommendations that may lower your taxes. For example, if you qualify, the Roth IRA may provide you and your heirs with significant income tax savings. For both income tax and estate planning reasons, many clients are now considering whether to convert a portion or all of their Traditional IRAs into Roth IRAs.
If you qualify, conversion to a Roth IRA could save you and your family substantial income tax liabilities. Our office can analyze whether conversion to a Roth IRA will make sense for you and your children and heirs. Use our on-line Financial Calculators to project the growth of your estate:
Planning for Retirement Distributions As you approach retirement, you will be faced with numerous decisions that will have a lasting financial impact on your spouse, your children, and yourself. It is therefore critical that you make your decisions with full knowledge and understanding of the complex laws governing retirement plans. We understand that your family's financial security is the single most important issue facing you. We can assist you in making the right choices. There are many different types of retirement plans, including defined contribution plans, profit sharing plans, tax-deferred annuities, 401(k) plans, and Individual Retirement Plans (IRAs), to name a few. Most qualified plans are subject to very complex rules that include elections for required distributions at some point in time. Plan participants, and their beneficiaries will be faced with important decisions regarding these distributions. These decisions must not be viewed lightly. They are often irrevocable and result in significant tax consequences to both the retiree and his or her family. Many of our clients start planning for retirement distributions when they reach 59 ½. We strongly recommend that you consult with us early, and start the planning process with sufficient time to take full advantage of the options available. Here is a link to Request a Social Security Earnings Statement to start you on your way. Also, click for important information on Medicare, including search engines for comparison shopping for health plan and Medigap coverages. To give you an idea of the decisions you will face, click below to read about the very complex minimum mandatory distribution rules of most qualified retirement plans. Use our on-line Financial Calculators to project whether you have enough saved for retirement: 1. Do I have enough saved for retirement?
Many of our Estate and Tax Planning clients with more sophisticated tax issues request that our office prepare their annual income tax returns. We are pleased to offer this service to our clients. Our office utilizes Lacerte Software, a leader in the tax preparation software industry.
We participate in the IRS e-file Program and MA DOR Electronic Filing Program for those clients who wish to electronically file their tax returns through our office. We are pleased to publish our Privacy Policy Disclosure Notice pursuant to the Gramm-Leach-Bliley Act of 2001.
Representation Before IRS and MA DOR If you are called before the tax authorities for an audit, it is advisable that you retain counsel. We have the experience and knowledge to assist you during this most difficult and stressful time. If you receive an audit notice, call our office before you communicate with the tax authorities. Here are links to a few web sites that may be interest.
Click here for questions, comments, or to request an appointment.
|
Atty. Wayne R.
Davies |
Copyright 1999-2006 ©
Wayne R. Davies. All rights reserved.
Photo © David Forster.
Web site by Golden
Rule Productions.
