|
TAX PLANNING
In growing Estates of over $625,000, a trust should be considered for tax reasons. The IRS treats transfers of assets for individuals in two separate and distinct ways:
- Non-marital transfers (transfer to someone other than your spouse), which are taxable transfers;
- Marital transfers (to a spouse), which are non-taxable (the marital deduction).
In 1998 the IRS will allow a tax credit that enables you to pass up to $625,000 free of transfer taxes. This credit will increase gradually to $1,000,000 by 2006.
The second type of transfer is a marital deduction that enables the surviving spouse to defer taxes on 1/2 of the estate. The marital deduction is unlimited. When planning your estate, it is important to realize that everyone is able to transfer (either during life or at death) up to $625,000 in assets free of federal gift or estate taxes. It is critical to note that this is a "use or lose" credit. If you transfer all your assets directly to your surviving spouse you will effectively lose all of your available transfer tax credit. This is an important issue to discuss with your financial advisor, CPA and attorney. Often times, a life insurance policy is purchased to pay the tax obligation.
|
