Estate tax exclusion 2014

The IRS has released their inflation adjusted numbers for 2014. The estate tax exclusion has gone up to $5.34m for 2014.  The annual gift exclusion remains at $14,000. Below is the text straight from the IRS website:

2014 Inflation Adjustments

IR-2013-87, Oct. 31, 2013

WASHINGTON — For tax year 2014, the Internal Revenue Service announced today annual inflation adjustments for more than 40 tax provisions, including the tax rate schedules, and other tax changes. Revenue Procedure 2013-35 provides details about these annual adjustments.

The tax items for tax year 2014 of greatest interest to most taxpayers include the following dollar amounts.

  • The tax rate of 39.6 percent affects singles whose income exceeds $406,750 ($457,600 for married taxpayers filing a joint return), up from $400,000 and $450,000, respectively. The other marginal rates – 10, 15, 25, 28, 33 and 35 percent – and the related income tax thresholds are described in the revenue procedure.
  • The standard deduction rises to $6,200 for singles and married persons filing separate returns and $12,400 for married couples filing jointly, up from $6,100 and $12,200, respectively, for tax year 2013. The standard deduction for heads of household rises to $9,100, up from $8,950.
  • The limitation for itemized deductions claimed on tax year 2014 returns of individuals begins with incomes of $254,200 or more ($305,050 for married couples filing jointly).
  • The personal exemption rises to $3,950, up from the 2013 exemption of $3,900. However, the exemption is subject to a phase-out that begins with adjusted gross incomes of $254,200 ($305,050 for married couples filing jointly). It phases out completely at $376,700 ($427,550 for married couples filing jointly.)
  • The Alternative Minimum Tax exemption amount for tax year 2014 is $52,800 ($82,100, for married couples filing jointly). The 2013 exemption amount was $51,900 ($80,800 for married couples filing jointly).
  • The maximum Earned Income Credit amount is $6,143 for taxpayers filing jointly who have 3 or more qualifying children, up from a total of $6,044 for tax year 2013. The revenue procedure has a table providing maximum credit amounts for other categories, income thresholds and phaseouts.
  • Estates of decedents who die during 2014 have a basic exclusion amount of $5,340,000, up from a total of $5,250,000 for estates of decedents who died in 2013.
  • The annual exclusion for gifts remains at $14,000 for 2014.
  • The annual dollar limit on employee contributions to employer-sponsored healthcare flexible spending arrangements (FSA) remains unchanged at $2,500.
  • The foreign earned income exclusion rises to $99,200 for tax year 2014, up from $97,600, for 2013.
  • The small employer health insurance credit provides that the maximum credit is phased out based on the employer’s number of full-time equivalent employees in excess of 10 and the employer’s average annual wages in excess of $25,400 for tax year 2014, up from $25,000 for 2013.

Details on these inflation adjustments and others not listed in this release can be found in Revenue Procedure 2013-35, which will be published in Internal Revenue Bulletin 2013-47 on Nov. 18, 2013.

Estate Planning second thoughts

A great article in Private Wealth magazine quotes yours truly!  It is an article about the people that made large gifts at the end of 2012 to take advantage of the $5.12m federal gift tax exemption. Did any of them have second thoughts when the law was extended in the wee hours on January 1, 2013? The article talks about that and quotes me. Check it out here!  -John

More than estate planning

I recently saw a link to this New York Times article on volunteer travel. It’s not cheap to travel around the world and help people but, for people that can afford it, I can not imagine a better way to plan for your family’s future! Here’s the article for your reading pleasure. LINK

How permanent are the 2013 estate tax laws?

If President Obama’s 2014 budget is any prediction of the future the 2013 “permanent” estate tax law changes are not very permanent. Or, put another way, only politicians would call them permanent!  I have read, in recent days, that President Obama is proposing going back to 2013 estate tax levels. That would mean a $3.5m exemption and a 45% tax rate. Read more on this web site HERE.

America’s Best Trust Companies

The 2013 report on America’s most advisor friendly trust companies was released last week.  Here is a link to the full article.  The article has a lot of informative information about working with a trust company and some of the differences of using trust companies in different states. Also, in that article is a list of 24 top estate planning attorneys including my law school classmate, Steve Oshins. When you want to set up a Nevada trust or LLC Steve is the man to talk to! If you have questions about working with a trust company do not hesitate to contact me.  -John

LLCs and FLPs in the new year….

The government has come up with a “permanent” estate tax solution. Does that mean you can get rid of your family limited partnerships and LLCs? What about your irrevocable trusts? There are a lot of good reasons for them!

Today we will hit on a few reasons why you should keep your family limited partnerships (or LLCs) you already have and consider adding them to your estate plan:

1) Asset protection: Entities like corporations, LLCs and limited partnerships add asset protection when proper business formalities are followed.

2) Management and control: A family entity can keep control of the family empire with mom and dad for as long as mom/dad want!

3) Income tax benefits: With the limited personal deductions available maybe you can receive income tax benefits from writing off expenses at the entity level rather than the personal level!?

There are more reasons, of course, so contact me to discuss.  -John

Advanced Estate Planning continues in the new year….

Our office did a lot of advanced estate planning late in the year. We helped clients give away tens of MILLIONS of dollars, without tax, through mediums such as family limited liability companies (FLPs), irrevocable trusts, and tenancy in common agreements.  Most experts thought the January 1, 2013 date would come with a lower gift and estate tax exemption. Maybe not the $1mil as the law was written but maybe something like $3mil or $3.5mil. However, yesterday Congress came up with a new law leaving the exemption at $5.12m, leaving portability in place and continuing the recent years of indexing the exemption. This is all good news for high net worth people. If you didn’t take action to do your estate plan, and you are high net worth, then NOW IS THE TIME! Take action now!  The law can change at any time. Most likely it will too! The government is likely, at some point, to nip at the corners. Getting rid of valuation discounts is one of the most likely places the government will attack in my opinion. Get it done while you can!  Oh ya, and happy new year!  -John

It’s not too late for 2012 BIG gifts

The folks in DC are still twiddling their thumbs, posturing, or just out playing golf!? So nothing new has developed out there and thus the fiscal cliff is coming. The loss of the greatest gift and estate tax exemption of my lifetime is about to sunset into history. Will we look back on 2011 and 2012 as historic years in the gift and estate tax world?

In the past week I have met with four different clients with net worths around $20-25m. In our little practice, in little old Sacramento, these are pretty wealthy people. All of them wanted to talk to me about taking advantage of the 2012 tax laws before it’s too late. The GIFT that is the 2012 gift tax exemption. The gift that expires in 27 days. To say it’s not too late is a stretch in that it’s not too late if you start TODAY or maybe tomorrow. However, the longer you wait in the month the harder it will be to put together a truly tax efficient plan.

We might be able to throw something together on December 20th or so. However, it will not get the benefit of a minority and lack of marketability discounting study done by a forensic accountant. That is, they won’t have time to do their job. However, we can still do things like gift 50% of a parcel and get a 15-20% discount through a tenancy in common (TIC).

The key is planning ahead. Yes, you should have called me 6 months ago. However we can still save your family MILLIONS in estate tax so call us, or another qualified estate planning attorney, today.

Best States for Dynasty Trusts – 2012

Each year my law school classmate, Steve Oshins, puts out a list of the top states to use for a “dynasty trust” and for a asset protection trusts. He just released his dynasty trust rankings.

A dynasty trust is a trust designed to live as long as possible, from generation to generation, or a “Rockefeller Trust” as I like to call them. The government, long ago, determined that creating a taxable event at each death was important… and likewise smart attorneys came up with ways around the tax.  The dynasty trust is the best way to pass wealth, for many generations, without tax.

Steve Oshins, a 1994 graduate of the McGeorge School of Law (University of Pacific), like me, is one of the nation’s foremost experts on dynasty trusts. He has been quoted in major publications like Forbes and the Wall Street Journal.  Steve often speaks about dynasty trusts and each year publishes his ranking of the top states to house your dynasty trust. Here is the link to Steve’s latest rankings.

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10.0John Bernard Palley
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