Tax Planning

Bloomington Estate Tax Planning

Historically speaking, the federal estate tax is an excise tax levied on the transfer of a person’s assets after death. In actuality, it is neither a death tax nor an inheritance tax, but more accurately a transfer tax. There are three distinct aspects to federal wealth transfer taxes that comprise what is called the Unified Transfer Tax:

  • Estate Taxes
  • Gift Taxes
  • Generation-Skipping Transfer Taxes

Our experienced Bloomington estate planning tax professionals work with clients to avoid or minimize these transfer taxes. Call Sandahl & Damhof at  612-448-3898 or reach out here online to set up a free consultation. Our service area routinely extends across the Twin Cities and into Minneapolis, Edina, and Richfield. 

Estate Taxes in the Tax Cuts and Jobs Act of 2017

On December 22, 2017, President Donald J. Trump signed the Tax Cuts and Jobs Act of 2017 (TCJA 2017) into law. Sandahl & Damhof helps all our clients understand the implications of this law on their estate taxes—specifically, the numbers governing  the transfers subject to estate, gift, and generation-skipping transfer taxation.

Federal Estate Tax Exemption

A $5 million exemption, as indexed for inflation, was signed into law on December 17, 2010, under the Tax Relief, Unemployment Insurance Authorization, and Job Creation Act of 2010 (TRA 2010). By 2017, the federal estate tax exemption had risen to $5.49 million per individual due to being indexed to rise with the inflation rate.

With the stroke of his pen, in TCJA 2017, President Trump increased this exemption to $11.2 million for an individual and $22.4 million for married couples. For 2023, that exemption is increased to an inflation-adjusted $12.92 million per individual and $25.84 million for married couples. The top tax rate is 40%.

Lifetime Gift Tax Exemption & Annual Gift Tax Exclusion

The TCJA 2017 continues the concept of a unified exemption that ties together the gift tax and the estate tax. This means that, to the extent clients utilize their lifetime gift tax exemption during their lives, their federal estate tax exemption at death will be reduced accordingly.

The unified lifetime gift and estate tax exemption in 2017 was $5.49 million and is now the same as the federal estate tax exemption.

So, how much is this annual gift exclusion?

The annual gift exclusion increased from $16,000 to $17,000 due to its inflation adjustment. Married couples can combine their annual gift exclusion amounts to make tax-exempt gifts totaling $34,000 to as many individuals as they choose each year, whether both spouses contribute equally, or if the entire gift comes from one spouse. In the latter instance, the couple must file an IRS Form 709 Gift Tax return and elect “gift-splitting” for the tax year in which such gift was made.

Contact the Bloomington estate planning lawyers at Sandahl & Damhof at  612-448-3898  or reach out here online today. 

Generation-Skipping Transfer Tax Exemption

The Generation-Skipping Transfer Tax Exemption (or GSTT) is a transfer tax on property passing from one generation to another generation that is two or more generational levels below the transferring generation.

An example would be a transfer from a grandparent to a grandchild, or from an individual to another, unrelated individual, who is more than 37.5 years younger than the transferor.

The limits on the GSTT exemption are also set at $12.92 million for individuals and $25.84 million for couples. The top tax rate continues to be 40%.

Properly done, the GSTT can allow for the transfer of significant wealth between generations. Helping clients do this properly is the role of our Bloomington estate planning attorneys.

Portability in Estate Tax Planning

The American Taxpayer Relief Act of 2012 (ATRA 2012) established a new concept in estate planning for married couples. The change would ostensibly rendering traditional estate tax planning unnecessary. This concept is called portability.

Portability means that a surviving spouse can essentially inherit the estate tax exemption of the deceased spouse without use of “A-B Trust” planning. As with most tax laws, however, the devil is in the details. For example, unless the surviving spouse files a Form 709 Estate Tax Return within nine months of the other spouse’s death, and complies with other requirements, the portability may be unavailable.

However, an automatic six month extension of time to file the return is available to all estates, including those filing solely to elect portability. The means to do this is by filing Form 4768 on or before the due date of the estate tax return.

Here’s the catch–married couples will not be able to use the GSTT exemptions otherwise available to both spouses if they elect to use portability as the means to secure their respective estate tax exemptions. Furthermore, reliance on portability in the context of blended families may result in unintentional disinheritances and other unpleasant consequences.

If you are concerned about how your current estate and gift planning may function in light of TCJA 2017, and thereafter, please contact Sandahl & Damhof by calling   612-448-3898 or through filling out our online contact form, and we’ll set up a free consultation. 

Experience Matters in Estate Planning

The detail covered here is really just the tip of the iceberg when it comes to understanding the tax consequences of estate planning. Add to that, the unique dynamics that exist with the financial portfolio and wishes of every individual client. There’s no room for one-size-fits-all solutions.

With over 60 years of combined experience, our Bloomington estate tax planning lawyers understand all of these issues and how to apply them in specific strategies for individual clients. Put our accumulated knowledge on your side.

Call Sandahl & Damhof at  612-448-3898  or contact us online to set up a free consultation. 

Why Our Clients Choose Us

Our mission is to become an essential, trusted partner in our clients’ lives. We achieve this by leveraging our experience, expertise, and tireless work ethic.

  • Collaborative Approach We aim to be your trusted partner. We work together with our clients to find the best solution for them and their families.
  • Individualized Guidance Our attorneys get to know you and your family to understand what options are right for you.
  • Lasting Relationships Estate planning needs change throughout every stage of your life and our team will be with you every step of the way.
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