Support our online development, and advance our onground research initiatives in free market economics, as we seek to showcase the brightest Next-Gen minds.
THE ME-P DISCLAIMER: Posts, comments and opinions do not necessarily represent iMBA, Inc., but become our property after submission. Copyright © 2006 to-date. iMBA, Inc allows colleges, universities, medical and financial professionals and related clinics, hospitals and non-profit healthcare organizations to distribute our proprietary essays, photos, videos, audios and other documents; etc. However, please review copyright and usage information for each individual asset before submission to us, and/or placement on your publication or web site. Attestation references, citations and/or back-links are required. All other assets are property of the individual copyright holder.
On IRS Publication 950
By Children’s Home Society of Florida Foundation
The IRS recently released Publication 950, Introduction to Estate Gift Taxes. It provides a very general overview for the public, doctors and many professional financial advisors with respect to estate and gift taxes. The publication is a useful and concise description of the changes that apply in 2012.
1. Unified Credit – The unified credit on the basic exclusion for 2012 will be $1,772,800. This will exempt an estate of $5,120,000 from tax.
2. DSUE Amount – Under the principal of marital portability, the basic exclusion amount of $1,772,800 may be augmented by the unused exclusion amount of the last deceased spouse who passes away in 2011 or 2012.
3. Gift Annual Exclusion – The annual exclusion for present interest gifts for 2012 will be $13,000. The exclusion will not apply for gifts of a future interest.
4. Permitted Gifts – There are several categories of gifts that are permitted without payment of gift tax. These include an unlimited transfer for outright gifts to spouse, gifts to a qualified charitable organization, payments of tuition to an educational institution, or payments of qualified medical expenses to a hospital or other medical institution.
5. Gift Splitting – If one spouse of a married couple makes a gift to an individual, the two may file an IRS Form 709 Gift Tax Return and report one-half of the gift.
6. Gift Tax Unified Credit – The gift tax return will require determining taxable gifts and then a reduction by the unified credit. After adding up the amount of the gifts and reducing the amount by a marital deduction, charitable deductions, educational exclusions or medical exclusions, the $13,000 annual exclusion is applied first. This is a per-donor, per-donee exclusion. The remaining amount will be covered by the unified credit. If the full amount of unified credit is exceeded, then gift tax at a rate of 35% will be applicable on the excess.
7. Gift Tax Return Filing – The gift tax return is generally required if there are gifts to a non-spouse that are over the annual exclusion, a married couple are splitting gifts, there is a gift of a future interest or there is a gift to a spouse of an interest in property that will be ended by a future event.
8. Gross Estate – The gross estate generally includes all probate and non-probate assets owned at death. Life insurance payable to the estate or owned by the decedent is included. Most annuities and some property transferred within three years of death are also included.
9. Estate Deductions – On the estate tax return, the executor may deduct funeral expenses, last medical expenses, debts, the marital and charitable deduction and the state death tax deduction. The balance will be subject to the unified credit for the applicable exclusion amount. Any excess estate value over the applicable $5.12 million exclusion in 2012 may be subject to tax at 35%.
10. Filing IRS Form 706 – An estate tax return will be required if the estate exceeds the applicable exclusion amount of $5,120,000 in 2012. It also is required in order to preserve a deceased spousal unused exclusion amount. Therefore, many married couples with fairly modest estates may choose to file IRS Form 706 when the first spouse passes away.
11. Generation Skipping Transfer Tax (GSTT) – An additional transfer tax may be applicable for distributions to a person who is two or more generations below the generation of the donor. A grandchild or great-grandchild is a typical skip person for GSTT purposes. The GSTT of 35% may be applicable if a direct skip, taxable distribution or taxable termination is in excess of the applicable exclusion amount.
12. Income Taxes on an Estate – If an estate has $600 or more of gross income or a beneficiary who is a nonresident alien, then an IRS Form 1041 income tax return is required. In addition, the estate must send Schedule K-1 (Form 1041) to beneficiaries of the estate. These beneficiaries may be required to include income, deductions and credits in their personal IRS Form 1040 Tax Return.
Conclusion
Your thoughts and comments on this ME-P are appreciated. Feel free to review our top-left column, and top-right sidebar materials, links, URLs and related websites, too. Then, subscribe to the ME-P. It is fast, free and secure.
Link: http://feeds.feedburner.com/HealthcareFinancialsthePostForcxos
Speaker: If you need a moderator or speaker for an upcoming event, Dr. David E. Marcinko; MBA – Publisher-in-Chief of the Medical Executive-Post – is available for seminar or speaking engagements. Contact: MarcinkoAdvisors@msn.com
OUR OTHER PRINT BOOKS AND RELATED INFORMATION SOURCES:
DICTIONARIES: http://www.springerpub.com/Search/marcinko
PHYSICIANS: www.MedicalBusinessAdvisors.com
PRACTICES: www.BusinessofMedicalPractice.com
HOSPITALS: http://www.crcpress.com/product/isbn/9781466558731
CLINICS: http://www.crcpress.com/product/isbn/9781439879900
BLOG: www.MedicalExecutivePost.com
FINANCE: Financial Planning for Physicians and Advisors
INSURANCE: Risk Management and Insurance Strategies for Physicians and Advisors
Share this:
Filed under: Estate Planning, Taxation | Tagged: DSUE Amount, Estate Planning, estate taxes, Generation Skipping Transfer Tax, Gift Annual Exclusion, Gift Splitting, Gift Taxes, IRS Form 706, IRS Publication 950, Unified Credit |
The Leading Business Education Network for Doctors, Financial Advisors and Health Industry Consultants 
Beneficiary Basics, and Beyond
When opening up retirement accounts, most financial advisors (and their doctor clients) usually give little thought to the process of completing the “beneficiary” section of the paperwork. Fewer still perform any ongoing review of the designations, regardless of any changes in the retirement account owner’s situation. But, this attitude must change in 2012.
http://registeredrep.com/newsletters/wealthmanagement/beneficiary_basics_and_beyond_1227/index.html
Ann Miller RN MHA
http://www.CertifiedMedicalPlanner.com
LikeLike
Only Days Left To Avoid Estate Tax Problem
Remember – At least one tax form must be filed by January 17th 2012 if heirs want to avoid estate taxes for property inherited from people who died in 2010, when there were no federal estate taxes.
Ann Miller RN MHA
[Executive-Director]
LikeLike
Where not to die in 2012
[Changes in estate and inheritance taxes at the state level will make it better — or worse — for families in the year ahead]
According to Ashlea Ebeling at Forbes.com, as of January 1st, the federal estate tax exemption was indexed for the first time, so that for 2012, up to $5.12 million of an estate will be exempt from the current 35% federal estate tax. That’s up from $5 million in 2011, meaning an individual could have left $120,000 more tax-free if he’d died on Jan. 1, 2012, instead of on Dec. 31, 2011.
Meanwhile, separate state levies are still a big concern for families. And there are changes for 2012 on the state levies on dying — for better and for worse.
Washington, D.C., and 22 states impose estate and/or inheritance taxes. States with estate taxes typically exempt $1 million or less per estate from their tax and impose a top rate of 16%. Six states levy only an inheritance tax, with the rate depending on the relationship of the heir to the deceased and the taxes kicking in, in some cases, on the first dollar of bequest.
Two states, Maryland and New Jersey, impose both. Maryland, for example, imposes an estate tax of up to 16% above a $1 million exemption and a 10% inheritance tax on every dollar left to a niece, nephew, friend or partner, but no inheritance tax on money left to children, grandchildren, parents or siblings. (Any estate tax owed is reduced by the inheritance tax paid.) As in the federal system, bequests to a spouse are tax-free.
Edward
LikeLike
Estate May Deduct Actual State Tax Payment
In Marshall Naify Revocable Trust v. United States; No. 10-17358 (14 Feb 2012), the Ninth Circuit considered a request for a refund of a deficiency. The refund request was based on a claim that the estate should be permitted to deduct the estimated rather than the actual state income tax payment. The Ninth Circuit denied the trust request.
Decedent Naify was a California resident who held a substantial position in Telecommunications, Inc. (TCI) notes. In 1999, TCI merged into AT&T and the notes were converted into AT&T stock, thereby creating a substantial capital gain.
To avoid potential payment of California tax on this $660 million capital gain, Naify created a Delaware corporation, Mimosa, Inc., and transferred his TCI notes to this new entity. Following his death in April of 2000, Naify’s executor filed his 1999 income tax return and did not report the gain on the California return. At the time of the filing of IRS Form 706 in July of 2001, the estate noted that there was a potential $62 million California claim for income taxes on the capital gain and claimed that amount as a deduction. The IRS audited the estate tax return and denied the deduction. Subsequently, the California FTB audited the income tax return and issued a deficiency for $58 million plus interest and penalties. In 2004, the estate settled with the California FTB. It paid tax of $19 million plus $7 million in interest, for a total of $26 million.
The IRS permitted the estate to deduct the $26 million and assessed a deficiency of $11 million, which was paid by the Naify trust.
In March of 2006, the trust filed a claim for refund with the IRS for the $11 million deficiency. It was denied. In April of 2009, the trust filed an action against Treasury in District Court and sought refund of the $11 million deficiency amount. The District Court ruled against the estate and it appealed.
The Court of Appeals noted that a deduction for a claim under Reg. 20.2053-1(b)(3) is permitted only if it is “ascertainable with reasonable certainty.” The trust claimed that there was a 67% probability that the California FTB would be successful in its claim. Therefore, at the District Court level, it reduced the $62 million deduction to $47 million.
The Court of Appeals stated that a claim supported by an estimate based on a probability is “not a factual allegation. Rather it is a legal conclusion.” Because the amount was inherently uncertain, it was not deductible.
The FTB case was dependent upon several contingencies. The FTB needed to assert a 1999 claim, determine that Mimoso was not a valid Delaware corporation and issue a deficiency notice.
The District Court noted that the estate expert claimed a 67% probability that California would succeed. However, as the Court stated, an estimate of probability does not make the claim reasonably certain.
Finally, Reg. 20.2053-1(b)(3) states that a post-death settlement is considered dispositive of claims. In this case, the settlement with the California FTB was a fixed amount and therefore dispositive of the claim. The request for refund of the deficiency was denied.
Source: Children’s Home Society of Florida Foundation
LikeLike
History of the Federal Estate Tax
Doctors – The history of estate taxes in America has been a long and winding road. Careful estate planning is still one of the most important ways to manage and protect your assets for your heirs.
The Stamp Act of 1797 was the first federal estate tax in the United States and was passed to help fund an undeclared war with France; it was repealed in 1802. The Revenue Act of 1862 reinstated the estate tax in order to fund the Civil War; it was abolished in 1870. To finance the Spanish American War, the War Revenue Act of 1898 was passed, and subsequently abolished in 1902. Due to the costs of World War I, the Revenue Act of 1916 reinstated an estate tax that, in some form or other, has been in effect ever since.
The Economic Growth and Tax Relief Reconciliation Act of 2001 gradually increased the federal estate tax exemption, until finally repealing the federal estate tax altogether for the 2010 tax year only. The 2010 Tax Relief Act reinstated the federal estate tax with a $5 million exemption (indexed for inflation after 2011) through December 31, 2012. The federal estate tax exemption is $5.12 million in 2012.
Unless Congress acts to amend or extend this latest tax law, the estate tax will revert to pre-2001 tax law rates, with a $1 million exemption and a top tax rate of 55%.
Murray
LikeLike
Can Medicaid pursue patients’ willed property?
According to this article, it apparantly can do just that:
http://www.tennessean.com/viewart/20120601/NEWS21/306010086/Willed-property-can-help-pay-TennCare-costs
The Tennessee Supreme Court just ruled that the state’s Medicaid program can go after the willed property of deceased patients who received long-term or nursing home care.
Zeva
LikeLike
Spousal Debt Not a Qualified Deduction
In Estate of Marion Derksen v. United States; No. 5:11-cv-04549 (7 Nov 2012), the estate attempted to deduct an informal debt owed to the estate of decedent’s late husband. The debt deduction was denied.
Decedent Marion Derksen (“Marion”) and her late husband Willard both had investment accounts. In 1992, her account was valued at $400,000 and Willard’s account held $25,000. In a 1994 meeting with their attorney they agreed to equalize the accounts. In 1997, her daughter suggested that she sign a note to Willard’s estate in the amount of $200,000 to equalize the estates. Marion also signed a $200,000 check, but it was never deposited. She was the heir for Willard’s estate.
Following Marion’s death in 2001, her estate deducted the $200,000 note to Willard’s estate. The IRS denied the deduction and assessed tax of $103,326.09 and a penalty of $8,115. An IRS letter offered a two-month abatement of the penalty.
The estate claimed a Sec. 2053 debt deduction. Marion’s promise to equalize estates was sufficient consideration.
The court noted that contracts among family members are viewed with greater care. Because the $200,000 in funds was never deposited in Willard’s estate, there was not a bona fide contract and therefore no qualified debt. In addition, the estate did not accept the two-month abatement offer. Therefore, the penalty was applicable.
Source: Children’s Home Society of Florida Foundation
LikeLike
Ten Trouble Spots for Estate Planners
As a financial advisor myself, I know that asset protection and estate planning by non-attorneys can be both lucrative and potentially troublesome. So, try to avoid these 10 often-made mistakes, especially when working with medical professionals or other HNW individuals:
1. Over-qualifying for the marital deduction by failing to use a bypass trust.
2. Give the surviving spouse unlimited access to a bypass trust rather than an ascertainable standard.
3. Not coordinating the titling of probate and non-probate assets.
4. Not giving the surviving spouse an annual income QTIP interest, thereby losing the marital deduction at the first death.
5. Not reviewing boilerplate language used by attorneys that may not apply to the particular client situation.
6. Not transferring ownership of life insurance to irrevocable trusts.
7. Not converting gifts of a future interest to a present interest.
8. Not funding testamentary trusts after the client’s death.
9. Not ensuring that donors don’t retain ownership interests in assets gifted.
10. Not using a generation-skipping trust where children are already wealthy.
Dr. David E. Marcinko; MBA CMP™
http://www.CertifiedMedicalPlanner.org
[Publisher-in-Chief]
LikeLike
2014 Update Gift Tax?
The federal gift tax applies to gifts of property or money while the donor is living. The federal estate tax, on the other hand, applies to property conveyed to others (with the exception of a spouse) after a person’s death.
The gift tax applies only to the donor. The recipient is under no obligation to pay the gift tax, although other taxes, such as income tax, may apply. The federal estate tax affects the estate of the deceased and can reduce the amount available to heirs.
In theory, any gift is taxable, but there are several notable exceptions. For example, gifts of tuition or medical expenses that you pay directly to a medical or educational institution for someone else are not considered taxable. Gifts to a spouse who is a U.S. citizen, gifts to a qualified charitable organization, and gifts to a political organization are also not subject to the gift tax.
You are not required to file a gift tax return unless any single gift exceeds the annual gift tax exclusion for that calendar year. The exclusion amount ($14,000 in 2014) is indexed annually for inflation. A separate exclusion is applied for each recipient. In addition, gifts from spouses are treated separately; so together, each spouse can gift an amount up to the annual exclusion amount to the same person.
Gift taxes are determined by calculating the tax on all gifts made during the tax year that exceed the annual exclusion amount, and then adding that amount to all the gift taxes from gifts above the exclusion limit from previous years. This number is then applied toward an individual’s lifetime applicable exclusion amount. If the cumulative sum exceeds the lifetime exclusion, you may owe gift taxes.
The 2010 Tax Relief Act reunified the estate and gift tax exclusions at $5 million (indexed for inflation), and the American Taxpayer Relief Act of 2012 made the higher exemption amount permanent while increasing the estate and gift tax rate to 40% (up from 35% in 2012). Because of inflation, the estate and gift tax exemption is $5.34 million in 2014. This enables individuals to make lifetime gifts up to $5.34 million in 2014 before the gift tax is imposed.
The CPA
LikeLike
Annual Gift Tax Exclusion 2015 & 2016
http://videopediaworld.com/video/99810/Annual-Gift-Tax-Exclusion-2015–2016
Marcus
LikeLike
UPDATE for 2018
The 2018 inflation adjustments for estate planning are out. Annual gift exemption up to $15k, estate up to $5.6M.
Dr. David Marcinko MBA
LikeLike