1Jump to first page1Unit 8, part 3Special Tax Issues in Estate PlanningTheodore A. FeitshansDepartment of Agricultural & Resource EconomicsNorth Carolina State UniversityJump to first page2Benefits of a will: Unified Credit Fully use credit of first spouse to die by placing credit amount in a testamentary trust, income to spouse, remainder to children Second spouse also fully uses credit amount Unified credit times two passes to children without any federal estate tax dueJump to first page3Estate Tax Applicable Exclusion AmountYear Credit Excl. Amount2002-03 345,800 1,000,0002004-05 555,800 1,500,0002006-08 780,800 2,000,0002009 1,455,800 3,500,0002010estate &GST repealedestate &GST repealed2011 345,800 1,000,000**Gift tax exclusion amount remains at $1,000,000.2Jump to first page4Maximum Estate & Gift Tax Rates Year Estate 2001 60%* 2002 50% 2003 49% 2004 48% 2005 47% 2006 46% 2007-09 45% 2010 Repealed 2011+ 60%* *10,000,000 - 17,184,000, 55% on excess Gift 60%* 50% 49% 48% 47% 46% 45% 35% 60%* (5% surtax)Bert's and Beth's EstateThis assumes that Bert dies now (2002) and Beth dies soon after with no inflation or growth inthe value of the assets. At Bert's death At Beth's death Gross estate $1,030,000 $550,000Inherited from spouse 1,000,000Growth before death 0Other expected inheritance 0 0Life insurance proceeds at spouse's death 0 50,000TOTAL ASSETS in estate $1,030,000 $1,600,000 Debts 0 0Funeral expenses 5,000 5,000Estimated settlement costs 25,000 40,000 TOTAL DEDUCTIONS $ 30,000 $ 45,000To Spouse To childrenAssets minus deductions $1,000,000 $1,555,000Marital deduction 1,000,000 0Taxable estate 0 1,555,000Federal Estate Tax 0 580,550Unified Credit 345,800 345,800FEDERAL ESTATE TAX DUE 0 $ 234,750 Bert's and Beth's EstateChange wills to leave most of the assets to the children or in trust for the children withthe wife getting income for life.At Bert's death At Beth's deathGross estate $1,030,000 $550,000Inherited from spouse 0 0Growth before death 0 0Other expected inheritance 0 0Life insurance proceeds at spouse's death 0 50,000TOTAL ASSETS in estate $1,030,000 $600,000Debts 0 0Funeral expenses 5,000 5,000Estimated settlement costs 25,000 22,000 TOTAL DEDUCTIONS $ 30,000 $ 27,000To To Trust To Spouse for children childrenAssets minus deductions $0 $1,000,000 $563,000Marital deduction 0 0 0Taxable estate 0 1,000,000 563,000Federal Estate Tax 0 345,800 179,110Unified Credit 0 345,800 345,800FEDERAL ESTATE TAX DUE 0 0 03Jump to first page7Complex Issues Forms of business organization Minority/alienation discounts Special use valuation Qualified Family Owned Business Interest (repealed) Installment payment of federal estate taxes Qualified conservation easement exclusionJump to first page8Special Use Valuation (Code Sec. 2032A) Reduce valuation of qualifying real property by up to $850,000 for deaths occurring in 2004 (indexed) Recapture if property ceases to qualify Reduces stepped up
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