Assumptions

[Kathleen Reynolds]

#3854

• Gift Splitting When one spouse makes a gift to a third person, if the other spouse consents, it may be treated as having been made one half by each. Thus, they can now give together up to twice the annual exclusion amount per year via annual exclusion gifts to each donee and can use the unified credits of both spouses. The consent must relate to all gifts made by both spouses during the year and both spouses must be U.S. citizens or residents. It should be noted that if one spouse uses his/her sole assets for the gift, the other spouse will not be treated as a donor for estate tax purposes. Gift splitting is applicable for gift tax and GST Tax calculation purposes only. It is NOT applicable for estate tax calculation purposes. This allows gift splitting to be used in situations where the gift is to a trust and the non-donor spouse is a beneficiary. Answer yes to assume that the donor and the donor’s spouse are both signing the gift tax return, indicating that half the gift is being given by each spouse. If you enter no, the technique will not be employed. The program offers the options to have married individuals utilize gift splitting or no gift splitting on all illustrated gifts. If gift splitting is selected, all gifts by the married donor must be gift-split. The program will then illustrate the subsequent reduction in the remaining applicable exclusion amount and also illustrate the gift tax to for the year of the gift.
• Liquidate Assets at Second Death? Upon the second death of the estate owner, certain assets, such as a qualified plan, can either be converted to cash, for which income tax would then be due, or can have withdrawals made from them each year, in which case the amount taxed annually would be smaller. Answer yes to this question to have income taxes calculated on the Analysis of Taxes at Death report.
• Computer Button Wherever a computer icon appears, click on it for help with entering data in the field next to it.
• Income Tax Rate This is the rate the program uses to tax money pulled out of assets. It is used several places in the program. If you need help calculating what rate to use, click the computer icon next to this field. A calculator will appear to help you arrive at the correct tax rate given the client’s filing status, adjusted gross income, and number of exemptions.
• Heirs Income Tax Rate Enter the rate at which heirs are taxed.
• Growth: Portfolio This is a net growth rate; no tax is applied to the growth of the portfolio. The portfolio balance is a liquid fund for paying taxes. When assets generate income, it can either be reinvested in the asset or put the income in the portfolio balance.
• Growth: Credit Shelter This is a net growth rate; no tax is applied to the growth of the credit shelter.
• Inflation Rate for Estate Tax Exclusion This is the percentage increase for the exclusion amount under the 2010 Tax Relief Act. In 2023, the amount is $12,920,000; In later years, the exclusion rate is increased by the inflation rate entered.
• Portfolio Balances The portfolio balance is a liquid fund for paying taxes. When assets generate income, it can either be reinvested in the asset or put the income in the portfolio balance.
• Prior Gifts Any gifts made by the client of spouse, prior to the date of the analysis, which were above the Annual Exclusion amounts. These amounts are factored in when the estate tax is calculated.
• Unified Credit Used for Prior Gifts Enter the amount of unified credit used by prior gifts. If there are no prior gifts, then no unified credit has been used. For years after 2009, the amount of unified credit used must be recalculated using current tax rates. As a practical matter, a recalculated unified credit is needed for federal estate and gift tax calculations when more than $500,000 of taxable gifts were made before 2010 because taxpayers can no longer rely on the amounts reported on the gift tax returns that were filed for those prior gifts. You can use another software product such as Brentmark Software’s Estate Planning Tools with its Prior Gifts model to compute the proper credit allowable to be entered for the Unified Credit Used.
  Portability of Applicable Exclusion Amount (Exemption)
  For years beginning in 2011, the 2010 Tax Relief Act reinstates the federal estate tax with a top rate of 35%; exemption will be $5 million per person which is indexed for inflation beginning in 2012. The exemption is $5,120,000 in 2012, $5,250,000 in 2013, $5,340,000 in 2014, $5,430,000 in 2015, $5,450,000 in 2016, $5,490,000 in 2017, $11,180,000 in 2018, and $11,400,000 in 2019. For spouses dying after December 31, 2010, the $5 million exemption is portable. Any unused exemption may be used by the surviving spouse. The amount of any unused exemption is not indexed for inflation in future years. For years beginning in 2013, the American Taxpayer Relief Act of 2012 changed the top estate tax rate to 40%.
• Charitable Bequests Any gift to charity that results in an income tax deduction. Current income tax law limits charitable tax deductions for certain high-income individuals. A charitable remainder annuity trust will often result in a charitable deduction; a charitable lead annuity trust will not.
• Probate and Administrative Expenses The amount of money it costs to administer an estate, including disposition and re-titling of assets, filing documents with the appropriate courts, and the payment of applicable fees. Usually expressed as a percentage of the overall estate value. This does not include any estate taxes.

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