Estate Tax

We gave Jack, the executor of his mother’s estate, a break in the past few columns, because it was so complicated (and important) to report the New Year’s changes to the federal and Illinois estate tax law.  And we have determined that he will not have any estate tax to pay. 

Unfortunately, that does not actually answer the question of whether he will have to file an estate tax return.  If his mom’s assets were very close to the Illinois exemption amount of $4 million, he might have to prepare the federal estate tax Form 706 and file that with Illinois and an Illinois estate tax Form 700, in order to prove no taxes are owed. 

This question is not a minor issue.  Why?  IRS Form 706 is now 31 pages long, not counting the required attachments (like appraisals and valuation reports), and requires information about everything Jack’s mother owned at her death, even if it was in joint tenancy with Jack or anyone else or if it was life insurance with Jack or someone else named as beneficiary. 

The Form 706 is time consuming and expensive to prepare.  Jack will want to legitimately avoid preparing it if he can.  Here, because his mother died with well less than $4 million, he happily will not be required to do that work as part of serving as executor.

For advice about leaving your estate to your family with a minimum of fuss, please call our office at (815) 436-1996 for an estate planning appointment.  © 2013 Gruber Law Office, Ltd.

We spent the last few columns explaining this year’s positive change in the federal estate tax laws.  In short, up to the amount of $5,250,000 after death may be passed to anyone without having to pay an estate tax.  That exemption amount will automatically be increased to adjust for inflation.

Of course, we live in Illinois, so there is more to the story.  The exemption amount for 2013 and beyond in Illinois is $4 million, and it is not automatically inflation adjusted. 

It is not easy to determine what the tax rate is for Illinois’ estate tax.  It is what they call an ‘interrelated calculation’ involving a theoretical version of the federal estate tax return (which is over 30 pages long before counting attachments).  Thus, so far as we are aware, only a select few attorneys or CPAs would be able to calculate the amount of tax in any estate themselves.  And it would be trying even for them. 

So the Illinois Attorney General has an estate tax calculator on its website that will do the multiple calculations required.  For the curious, there are links to the Attorney General estate tax calculators for 2012 and 2013 when you select the “Tools and Links” button on the left side of our website, which is GruberLawOffice.com. 

While most people do not need to worry about having more than $4 million at death now, in the future it could become a problem, just like the ‘old’ (until 1997) federal exemption of $600,000 became a problem for ordinary people. 

For advice about minimizing taxes and problems for your family after your death, call our office at (815) 436-1996 for an appointment.  © 2013 Gruber Law Office, Ltd.

The fiscal cliff deal/compromise passed at the first of the year has changed what we need to discuss with our clients on a daily basis.  After 12 long years of waiting for a long-term answer to the question of how much property – including life insurance money – could be left to family and friends without paying a special federal estate tax, the new federal minimum is now more than $5 million (up from a possible $1 million amount). 

There are all kinds of estate planning things you can do if you might leave more than the estate tax limit.  We became knowledgeable about those techniques over the years while working with everyday people who were at risk of getting caught in the estate tax trap just because they could die with more than $1 million in the future. 

That kind of planning was more complicated than our clients and we would have preferred, but it was better than our clients paying avoidable taxes.  But now we will not need to explain the estate tax system and its related special rules in detail very often. 

We are based in the southwest suburbs of Chicago (although when we moved here in 1977, it wasn’t in the suburbs yet!). 

Although this is not a destitute part of the world, families with more than $5 million to pass at death are definitely not common here.  But families with more than $1 million are common (not the majority, but still common). 

To discuss the more important planning issues, like planning access to good care in the future and reducing family tension after a person’s passing, please call our office at (815) 436-1996 for an estate planning appointment. © 2013 Gruber Law Office. Ltd.

We wrote last week about the January fiscal cliff deal that allows big changes in our office.  We are happy to report that all estates worth less than $5 million (after a person’s death in 2013 or later) should not have to pay any federal estate tax. 

Without that fiscal cliff deal, $4 million of that amount could have been taxed at about 40% and up.  Importantly, this $5 million exemption does not have an expiration date and will be inflation-adjusted each year. 

We have been waiting since August of 2001 for an increase of the estate tax exemption amount that will not expire.  Under the 2001 law, the increased exemption amounts were scheduled to end and drop back to $1 million at expiration, first in the year 2011 and then in 2013. 

During the 12-year wait, we nearly lost hope of having an exemption amount our clients could reasonably count on, we had to keep having to introduce everyday people to the often complicated planning designed to minimize estate taxes at death. 

Now we are able to focus on what we consider the more important issues for our clients - plans to minimize family conflict and get the most benefit to themselves and their families from what they worked their whole lives to save. 

For advice creating an estate plan that best helps your family or charity, call our office at (815) 436-1996 for an appointment.  © 2013 Gruber Law Office, Ltd.