Careful estate planning includes understanding your tax consequences and minimizing your estate taxes. Generally, the Internal Revenue Service (IRS) uses the value of your “gross estate” to determine your tax liabilities. The fair market value on the date of death determines a decedent’s estate tax liabilities. Your gross estate typically includes your probate property and other non-probate property. It does not include specific types of property, including spousal property jointly owned with a surviving spouse. Furthermore, it does not include some lifetime gifts. You can also reduce your estate taxes by claiming the following top five deductions:

1. Mortgages and excludable debts owed on the date of the decedent’s death.

2. Any expenses paid by the decedent’s estate or executor to administer the decedent’s estate.

3. Charitable deductions, if paid to qualifying charities.

4. Marital deduction for a surviving spouse for property jointly owned.

5. Any losses incurred by the estate during administration of the decedent’s estate.

Talk to your accountant or tax planner to see if any of these deductions apply.

Pyke & Associates, P.C. is a member of the American Academy of Estate Planning Attorneys.

During 2011, the Internal Revenue Service (IRS) revoked the tax-exempt status that thousands of charities enjoyed solely for failing to file annual returns for three consecutive years. Under Section 6033 of the Federal Internal Revenue Code, charities with Federal tax-exempt status are required to file annual tax returns or notices for three straight years. A charity that doesn’t comply with the filing requirements automatically loses its tax-exempt status on the date it was supposed to file its third annual return or notice. If a charity loses its tax-exempt status with the IRS, it must apply for reinstatement. The IRS provided a limited exemption for certain small charities, but this may no longer be the case for them. This means that affected charities must reapply if they lose their tax-exempt status, even if they were not required to apply for tax-exempt status at the outset. Part of a charity’s reapplication process involves paying user fees.

What does all of this mean for estate planning purposes? This means that if you were one of many millions of American taxpayers relying on the federal income tax benefits of being able to deduct your charitable contributions to reduce your taxable estate, you may no longer be able to deduct your charitable donations to those charities that are no longer receiving tax-exempt status by the IRS’ ruling. Before you make those large donations, you may want to verify the charity’s tax-exempt status.

Pyke & Associates, P.C. is a member of the American Academy of Estate Planning Attorneys.

When you are involved in a situation that is going to cost you a lot of money and the other party “holds all the cards,” as it were, any time the price comes down you are going to be somewhat grateful. For example, suppose your car broke down out in the country and a truck passed by, stopped, and offered to tow you to a repair shop ten miles away for $600 dollars. This is an exorbitant price, but you may be forced to pay it. So when the only other towing guy in the area pulls up and offers to do it for $350 you are grateful for the “break,” yet you know that you are being taken advantage of because you have no other options.

The recent changes to the estate tax are similar to the above scenario. The tax was scheduled to revert back to the 55% rate that was in place in 2001 upon the “sunset” of the Bush tax cuts as 2010 became 2011. First of all, how in the world can you ask someone to pay a tax that takes more than it leaves to its rightful owners? This is bizarre.So the passage of the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 reduced this anticipated 55% rate down to 35%, and that is certainly a step in the right direction, but it is a baby step nonetheless. From 2007 through 2009 (the tax was repealed for 2010) the rate of the estate tax was 45% so in a real sense the reduction was 10% from what it had been most recently.A 35% federal levy on the taxable portion of your estate is still enough to cut your legacy in half over two generations. This erosion can continue until nothing is left other than the exempt portion.Clearly, this is not the definition of “tax relief,” and it is not trite to suggest that this draconian obstacle that has been placed in the way of multi-generational success flies in the face of the American Dream.

Pyke & Associates, P.C. is a member of the American Academy of Estate Planning Attorneys.

There has been a great deal of concern in Atlanta estate planning circles about the return of the estate tax in 2011. It had been repealed for the entire 2010 calendar year as a provision in what are commonly referred to as the “Bush tax cuts” which were passed in 2001. But according to the law as it existed prior to December of 2010, the estate tax would be back in effect in 2011 with an exclusion of $1 million and a top rate of a whopping 55%. To put those numbers into perspective, when the estate tax was last in effect in 2009 the exclusion amount was $3.5 million and the top rate was 45%.

As the 2010 calendar year passed, the possibility of new legislation extending the Bush-era tax cuts was discussed, and a revision of the estate tax parameters was part of these discussions. During the month of December these talks began to heat up, and Congress did in fact pass a new tax bill that extends the overall tax cuts and provides estate tax relief for countless Americans.

Going forward the estate tax exclusion amount has been raised to $5 million, and the top rate of the tax is now going to be 35%. So the first five million dollars that you want to pass on to your heirs can be transferred tax-free and the rest will be taxed at 35%.

This is truly as close as it gets to a best case scenario for those who oppose the estate tax. A total and permanent repeal would have been the ultimate prize, but there were many who would have considered a $5 million exclusion coupled with a 35% top rate to be a resounding victory. For some reason many legislators who were reluctant to support continued widespread tax relief for all Americans singled out the estate tax provision as being especially disturbing to their sensibilities. This is hard to understand since the more successful you are, the more you are taxed every step of the way throughout your life. Why punish those who have contributed the most? In any event, estate tax relief has arrived so it is time to review your estate plan and make any changes that may be appropriate.

Pyke & Associates, P.C. is a member of the American Academy of Estate Planning Attorneys.

It is a bit of a flippancy, but the fact is that 2010 was a good year to die if you were very rich. The estate tax was originally enacted in 1916, and through 2009 every estate that did not fit under the exclusion amount was subject to this tax. Because of a provision in the sweeping tax reform act that was passed in 2001 the estate tax was repealed in 2010, but it will return again in 2011. So for example, the $1.1 billion estate of George Steinbrenner, the famed New York Yankee owner who died in July of 2010, was not subject to the estate tax. If he had to go he sure picked a good time, but it does leave you wondering about the logic behind this one-year repeal and how it is fair to the rest of us.

Regardless of how you feel about the temporary repeal, the estate tax is returning in 2011, and changes to the exclusion amount are going to be relevant to a lot of people here in the greater Atlanta area. The estate tax exemption was $3.5 million in 2009, so an estate was taxed on the portion of its value that exceeded $3.5 million. If it was worth less than that, you paid no estate tax at all. So, if your estate was worth $1.75 million there was no reason to strategically situate assets in an effort to stay under the exclusion amount.

However, in 2011 that exclusion amount is going to be reduced to just $1 million. So now, $750,000 of that $1.75 million estate is going to be subject to the estate tax, and the top rate of the tax is increasing from 45% to 55%. The bottom line is that this can reduce the value of your estate by hundreds of thousand of dollars. If the value of your estate exceeds $1 million, now is the time to take a close look at your estate plan and take action if necessary.

Pyke & Associates, P.C. is a member of the American Academy of Estate Planning Attorneys.

Estate taxes are federal taxes that are assessed on estates above a certain value. In 2009 the estate tax value was 3.5 million. As of 2010, that tax was repealed and there is currently no estate tax. In 2011, however, estate taxes will return to the 2001 level of 1 million. If your estate is not currently subject to taxes, it may be in the future. With the help of your attorney, you can lower your taxable estate in three ways.

Give to Family

If you plan to leave an inheritance to loved ones, you can gift some of that inheritance now to reduce the estate tax burden later. The 2010 annual gift tax exclusion limit is 13,000 per recipient, per year. The gift tax does not apply to your spouse. For any other family member you can gift 13,000 this year without paying taxes. If you go above that amount, you, not your loved one, will owe taxes on the extra amount. For your lifetime, you can gift up to 1 million dollars to your family members.

Leave Inheritances

You can also avoid estate taxes with some creative inheritance tricks. If you leave an inheritance for a loved one in an Irrevocable Trust such as a Common Pot Trust or a Lifetime Trust, all items in that Trust will not be included in your taxable estate at your death. This is because those items belong to the Trust and not to you. An Irrevocable Trust allows you to save on estate taxes, but beware, once you place items in the Irrevocable Trust, they are no longer under your control.

Give to Charity

You can also save on estate taxes by giving to charity with a Charitable Trust. You will even save on your current income tax return. All funds place into a Charitable Trust can be used for a tax deduction in that tax year.

Pyke & Associates, P.C. is a member of the American Academy of Estate Planning Attorneys.

There’s been quite a bit of buzz about estate taxes lately and if you’re following the story, you’ve probably caught the phrase “step-up in basis” once or twice.

So, what is the step-up in basis? And how does it affect you?

The step-up rule is what protects your heirs from paying capital gains tax on their inheritance. If, for example, your home is worth $200,000 when you pass away and your family decides to sell it for $200,000, your heirs would have to pay capital gains tax on the difference between your basis in the property (i.e.what you paid for the home so many years ago) and the $200,000 value it has now.

But with the step-up, your basis in the home is revalued at $200,000 at your death, so when your heirs sell the house, there’s no capital gains tax on the profit.

Of course, this isn’t the only way that estate taxes will affect your assets and some are not as beneficial. To learn more about planning your estate and minimizing taxes, contact our office today.

There’s been quite a bit of buzz about estate taxes lately and if you’re following the story, you’ve probably caught the phrase “step-up in basis” once or twice.

So, what is the step-up in basis? And how does it affect you?

The step-up rule is what protects your heirs from paying capital gains tax on their inheritance. If, for example, your home is worth $200,000 when you pass away and your family decides to sell it for $200,000, your heirs would have to pay capital gains tax on the difference between your basis in the property (i.e.what you paid for the home so many years ago) and the $200,000 value it has now.

But with the step-up, your basis in the home is revalued at $200,000 at your death, so when your heirs sell the house, there’s no capital gains tax on the profit.

Of course, this isn’t the only way that estate taxes will affect your assets and some are not as beneficial. To learn more about planning your estate and minimizing taxes, contact our office today.

Pyke & Associates, P.C. is a member of the American Academy of Estate Planning Attorneys.