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Estate Taxes Federal Law imposes taxes on an individual’s estate. Three permissible deductions/credits may, however, provide relief: - For married couples, at the death of the first spouse, there is an unlimited marital deduction for qualifying property left to the surviving spouse.
- Law permits a full deduction from the estate for amounts distributed to a charitable beneficiary.
- Law permits individuals, or in marriage, each spouse, a credit against taxes payable against their estate. Currently, the Federal Estate Tax credit allows individuals to distribute $3.5 million tax-free to personal beneficiaries. Anything above this threshold is taxed at a rate starting at 45%. This credit and the threshold tax rate may vary from year to year. For that reason, it is important to consult with an experienced tax advisor regarding current law and strategies to minimize exposure to estate taxes.
Income Taxes Certain estate assets have adverse income tax implications for the beneficiaries. These specific assets include: - Tax-deferred retirement funds (i.e. traditional IRAs, 401(k)s, and 403(b)s)
- Series EE and HH US Savings Bonds (to the extent that the bonds have not been reported annually)
- Stock options that have not expired at the time of death
- Deferred income and other accrued but not realized income (partnerships, royalties, etc.)
- Accounts receivable from a trade or business
Tax-deferred retirement accounts may have significant tax consequences and, therefore, deserve special consideration. If death occurs before all funds are withdrawn from these accounts, any distribution to personal beneficiaries is subject to an income in respect of decedent (IRD) tax. In essence, the funds are taxed as ordinary income before distribution to your beneficiaries, with a deduction given for any estate taxes paid. Mitigate the tax consequences of items in the list above by giving the assets outright to Eastview Legacy or distributing them to Eastview Legacy through a testamentary charitable remainder trust agreement. Outright Gift of Assets
The IRD tax is eliminated when retirement assets are gifted directly to Eastview Legacy at the time of death of the surviving spouse. Moreover, because the assets are gifted directly to a not-for-profit, a full estate tax deduction can be taken for the value of the gifted assets. The process is simple. Designate your spouse as primary beneficiary on the retirement account(s) and Eastview Legacy as secondary beneficiary. If you’re single, you may designate Eastview Legacy as primary beneficiary.
Testamentary Charitable Remainder Unitrust (TCRT)
The IRD tax is eliminated on retirement assets and a portion are eliminated from the estate for estate tax purposes while concurrently providing income for heirs. Retirement assets used to fund a TCRT may benefit personal beneficiaries for a term of one or two lives or a specific term of years. The remainder then passes to Eastview Legacy.
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