Estate Gift Dead Taxes

Changes to the Estate and Gift Tax Under the Tax Cuts and Jobs Act

The tax reform law doubled the basic exclusion amount (BEA) for tax-years 2018 through 2025. Because the BEA is adjusted annually for inflation, for 2022, the BEA is $12.06 million. Under the tax reform law, the increase is only temporary. Thus, in 2026, the BEA is due to revert to its pre-2018 level of $5 million, as adjusted for inflation.
Gift and estate taxes apply to transfers of money, property and other assets. Simply put, these taxes only apply to large gifts made by a person while they are alive, or large amounts left for heirs when they die. For 2022, an inflation adjustment lifts it to $12.06 million per individual and $24.12.8 million per couple.

Estate Tax

The fair market value of these items is used, not necessarily what you paid for them or what their values were when you acquired them. The total of all these items is your "Gross Estate." The includible property may consist of cash and securities, real estate, insurance, trusts, annuities, business interests and other assets.
Once you have accounted for the Gross Estate, certain deductions (and in special circumstances, reductions to value) are allowed in arriving at your "Taxable Estate." These deductions may include mortgages and other debts, estate administration expenses, property that passes to surviving spouses and qualified charities. The value of some operating business interests or farms may be reduced for estates that qualify.
After the net amount is computed, the value of lifetime taxable gifts is added to this number and the tax is computed. The tax is then reduced by the available unified credit.

Gift Tax

The gift tax applies to the transfer by gift of any property. You make a gift if you give property (including money), or the use of or income from property, without expecting to receive something of at least equal value in return. If you sell something at less than its full value or if you make an interest-free or reduced-interest loan, you may be making a gift.

What can be excluded from gifts?

The general rule is that any gift is a taxable gift. However, there are many exceptions to this rule. Generally, the following gifts are not taxable gifts.

Gifts that are not more than the annual exclusion for the calendar year for 2022 $16,000.
Tuition or medical expenses you pay for someone (the educational and medical exclusions).
Gifts to your spouse.
Gifts to a political organization for its use. In addition to this, gifts to qualifying charities are deductible from the value of the gift(s) made.

May I deduct gifts on my income tax return?

Making a gift or leaving your estate to your heirs does not ordinarily affect your federal income tax. You cannot deduct the value of gifts you make (other than gifts that are deductible charitable contributions).

Whom should I hire to represent me for tax, prepare and file the tax return?

The Internal Revenue Service cannot make recommendations about specific individuals, but there are several factors to consider and guidelines:

Hire one with credentials -Enrolled Agent (EA), CPA, or Tax Attorney
One with experience in filing Forms 1040, 1041, & 706, and 709
One belonging to professional associations with updated tax laws knowledge

May I deduct gifts on my income tax return?

What if I sell property that has been given as a gift to me?

The general rule is that your basis in the property is the same as the basis of the donor. For example, if you were given stock that the donor had purchased for $20 per share (and that was his/her basis), and you later sold it for $120 per share, you would pay income tax on a gain of $100 per share. (Note: The rules are different for property acquired from an estate).

Deceased Taxpayer without living trust:

Depends upon deceased with or without spouse and which state is living. Living in a community property state such as California or not.
What is the amount of deceased assets? Title or titles of assets held under community property (only married couples may hold title as community property), joint tenancy, joint tenancy, or community property with right of survivorship, or single property.
Probate court and legal costs depends upon size of assets, holding title.

Deceased Taxpayer with living trust:

Having Revocable or non-revocable trust.
Various dollar amounts and limitations in Form 706 are indexed for inflation. For decedents dying in 2022, the following amounts are applicable. • The basic exclusion amount is $12,060,000.00.
The basic exclusion amount is $11,400,000.
The deceased ‘s assets value must be determined at the time of death. Not the cost deceased paid when acquired the asset. Lifetime exclusion for individual for 2022 is 12.06 million until 12/31/2025. The beneficiary capital gain tax will be calculated using the date of death value should beneficiary decide to sell an inheritance. This is called Step-up in basis and is good thing not basis or cost of purchase paid to the assets by deceased.
Gift giver cost or basis is the same as the receiver. The IRS also confirmed that the annual gift exclusion amount for 2022 remains at $16,000 per individual per year. This means you can give $15,000 to as many people you want each year without filing a gift tax return. If decided to give more than annual gift exclusion, then can file Form 709. The receiver does not pay tax and giver also do not pay tax until he lifetime exclusion meets.

Advantages and Disadvantages of Married Couples Property Title Holdings

Community property-Each couple may will their one-half of the community property to another person on their death. Half of the community property transfers on death to their surviving spouse. Tax advantage is a full step-up basis which is beneficial for the surviving spouse. The disadvantage is that probate or similar proceeding is necessary to transfer surviving spouse and that could be expensive.
Joint tenancy-Two or more people, including spouses, may hold title to their jointly owned real estate property as joint tenants. There is a so-called “Right of Survivorship”, which means when one dies, the property automatically transfers to the survivor without the necessity of probating the estate. Which is good thing. While the advantage of joint tenancy is to avoidance of probate the disadvantage is that is only a partial step-up in basis for the surviving spouse. Disadvantage for a married couple is to hold title as joint tenants.

Advantages of Revocable Living Trust

Probably the best way to hold title to home and other real property is in a revocable living trust if titles are not in business entities such as LLC or corporations. Shares and interest of LLC and corporation could be included inside of living trust.

Avoidance of probate cost and delays. When the trustor dies, the assets are transferred by the alternate trustee quickly and with minimal expense to the specified beneficiaries.
Avoid possible conservatorship. A living trust, also known as a revocable trust.
Does a living trust eliminate the need for a will? No, a will has no effect on living trust assets. But a simple will is still needed for distribution of non-trust assets after one death, such as household furnishings and any other assets forgotten to put into the living trust. The terms of a will become public knowledge when it submitted for probate. The asst list on will subject to probate become public, but the terms of a living trust remain private. A living trust, specifically a revocable living trust, is a legal document that places your assets—investments, bank accounts, real estate, vehicles and valuable personal property—in trust for your benefit during your lifetime and spells out where you'd like these things to go upon your death.

You May Not Need a Living Trust?

It depends upon value of assets size, marital status, which state you are living. Overall living trust helps to organize one’s inventory of assets and things to go upon death. Also, could prevent costly probate court costs. The best in preparation of a living trust is to consult with an experienced professional with updated knowledge, reasonable cost, and with knowledge of your state laws you are living and resided. If size of properties, marital status or with minor children, divorced status or other complications hire an experienced Estate Attorney, due to complications of estate planning laws. For filing deceased trust tax returns the final Form 1040 and trust return 1041 or Form 706 if needed consult with Enrolled Agent, a federally licensed tax professional, CPA with tax practice experience, or attorney specialized in tax.

A properly and well written living trust can help:

To avoid probate on your assets-costly expenses.
TTo plan for the possibility of your own incapacity-with durable power of attorney.
To control what happens to your property after you are gone while you manage yours while alive.
To use it for any size estate, or property in various states, have extended family.
To prevent your financial affairs from becoming a matter of public record rather than keeping private.

Disclaimer:

The above information and material do not provide tax, legal or financial advice. This material has been prepared for informational and educational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or financial advice. For any specific matters you should consult with your own tax, legal and financial advisors before engaging in any transaction.
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