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Blue Bell Probate and Estate Administration Law Blog

Tag: Estate Tax

Estate tax changes and the upcoming election

On behalf of Kaplin Stewart Meloff Reiter & Stein, P.C. posted in Estate Tax on Oct 6, 2016.

Many Pennsylvania residents are paying close attention to this year’s general election, including watching the presidential debates. Some voters are concerned about proposals made by Democratic candidate Hillary Clinton to change existing estate tax rules. If those changes were to come to fruition, some of the nation’s wealthiest families would face a significant estate tax hike. Currently, estates that are worth up to $5.45 million are exempt from estate taxes. Any wealth accumulated beyond that point is subject to a tax of 40 percent. Secretary of State Hillary Clinton has proposed reducing the exemption amount to $3.5 million and increasing the tax rate to between 50 and 65 percent. Only those with an estate valued at more than $500 million would be subject to the highest rate. Of course, it should also be noted that families who have amassed significant levels of wealth are usually able to obtain excellent estate planning services. That can help them reduce the portion of their estate that is subject to taxation, and in some cases, eliminate estate tax consequences entirely. However, many are concerned that families who have done very well but are not exceedingly rich will be especially hard hit by these changes. It is also important to understand that the proposals and promises made during political campaigns do not always result in actual change. It is possible that even if Clinton is elected this November, the estate tax could remain at its current level. With campaign efforts now in full swing, Pennsylvania […]


Estate tax savings option could be coming to an end

On behalf of Kaplin Stewart Meloff Reiter & Stein, P.C. posted in Estate Tax on Aug 19, 2016.

Some Pennsylvania families have been able to enjoy a profitable estate planning option that involves transferring interests in a family-controlled business. That option may be coming to a close, however, with the announcement of proposed regulations that the IRS would like to employ. Should those proposals become law, this opportunity for families to reduce their estate tax and gift tax obligations could be severely limited. Currently, family members can transfer interests in a family-controlled business under a discounted valuation plan. The shares are valued far lower than similar shares that are traded on the open market. Part of that discount is based on the assumption that the limited nature of the shares would make them less marketable and therefore more difficult to sell. The value is also lowered due to the fact that the shareholders have limited control over the company. The proposed regulations would strictly limit the application of such discounts. That would leave family members open to higher taxation. It would also make the transfer of interests in a family-controlled entity a far less attractive means of transferring wealth from one generation to the next. For Pennsylvania families who have made use of these valuation discounts, there is still a measure of hope. The proposed changes are not yet law, and many experts expect stout resistance to them in court. That could take years to resolve, leaving families with a window in which to take advantage of the current state of affairs. If the changes are passed into […]


Wise gifting can reduce both capital gains and estate tax

On behalf of Kaplin Stewart Meloff Reiter & Stein, P.C. posted in Estate Tax on Jan 1, 2016.

With the right attention to detail, Pennsylvania families can save a great deal on taxes. This is true in regard to income taxes, and also other types of taxation. The creative use of gifting can help multiple generations avoid excessive capital gains and estate tax burdens. This form of gifting is sometimes referred to as “upstream gifting.” It involves making a gift of real estate to an older relative. This effectively removes the property from the estate of the original owner, which can reduce estate taxes. It can also reduce capital gains tax for the party that will eventually inherit the property from the older relative. When a property is sold, capital gains tax is calculated on the difference between the original purchase price (the “cost basis”) and the final sales price. The higher the basis, the lower the taxes. Basis can be increased by making improvement to the property, but inheritance is an even more powerful tool. When a person passes away, the current market price of the property becomes the new cost basis, and the individual who inherits the property also inherits that “stepped up” basis. So, by gifting property to an older relative, the piece of real estate is removed from the original owner’s estate, thereby saving on estate tax. When the recipient passes away, the property can be handed back down to Pennsylvania family members. They will receive the stepped up cost basis, which will reduce their capital gains tax burden if and when the property […]


IRS may limit an estate tax planning option

On behalf of Kaplin Stewart Meloff Reiter & Stein, P.C. posted in Estate Tax on Jul 1, 2015.

Many Pennsylvania families are aware of the benefits of creating a family-owned limited liability corporation or family limited partnership. These business structures allow one generation to pass wealth down to another without incurring a heavy tax burden. This strategy, however, may soon be limited or eliminated by the Internal Revenue Service, leaving many families waiting to see where their next estate tax planning moves should fall. The benefits of a family limited partnership lie in the tax discounts given for assets held within this type of business structure. Assets are placed into a family-owned business, which removes that wealth from the primary owner’s estate. Then, children or grandchildren are gifted limited partnerships in the business, but are not given control over the assets held within. Because of this limited connection, and the presumed decrease in marketability, the assets are valued at a lower rate than they would be under a different business structure. This means a reduced tax bill, and savings for all of the owners and partners. Recent comments from IRS officials, including statements made by an IRS tax attorney at a meeting of the American Bar Association, suggest that change may be on the horizon. The IRS has long sought to limit or even prevent tax discounts on limited-partnership business ventures. The ability to impose such changes is already present within the U.S. Tax Code. Should such changes take place, families in Pennsylvania and across the nation could find that their business assets are taxed at a value […]


A generation-skipping trust can eliminate estate tax

On behalf of Kaplin Stewart Meloff Reiter & Stein, P.C. posted in Estate Tax on May 29, 2015.

When a Pennsylvania family has concerns over how their wealth will be passed on after their death, a number of solutions are available. One is the creation of a generation-skipping trust, which allows a family to pass wealth down to their grandchildren while also providing value to their adult children. This type of trust also protects the wealth from the estate tax, which is a big draw for many families. When creating a generation-skipping trust, adult children can be granted the ability to withdraw any earnings that the trust makes, while leaving the base of wealth in place for their own children. When the time comes for the grandchildren to inherit, they will do so without incurring the estate tax. It should be pointed out that the earnings from a sizable trust can be significant, giving adult children a valuable stream of income. Creating and funding generation-skipping trusts is also a great way to protect an inheritance from losses that can accompany divorce or legal troubles. Because the base wealth is owned by the trust itself, and not the heirs, that wealth is protected from seizure through divorce or legal judgments. This provides an added layer of security for Pennsylvania families that wish to provide for their grandchildren. Generation-skipping trusts are just one way to ensure that loved ones receive their intended inheritance and avoid the estate tax. There are numerous other options that will also meet that goal. Each Pennsylvania family has a unique set of estate-planning needs and […]

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