Tag: Estate tax

The Benefits of Direct Lifetime Gifts to Charity

When you make gifts to charity during your lifetime, you benefit both the charitable organizations and your estate. Not only can you receive tax deductions, you also reduce the size of your taxable estate.

What Is a Direct Lifetime Gift to Charity?

Giving directly to a 501(c)(3) nonprofit or other qualified charitable organization is a lifetime gift to charity. Anyone can make this kind of gift in any amount – in fact, donations can be in the form of cash, supplies, real estate, or other items that benefit the organization. Making a lifetime gift alternatively could involve starting a foundation, setting up a donor advised fund, or some other method of giving over time.

Available Tax Deduction

“501(c)(3)” refers to the section of the tax code that permits tax deductions if you made donations to qualified nonprofits during that tax year. You need to keep track of the amount and type of your donations to receive the deduction. In addition, you usually will receive a tax benefit from the deduction only if you itemize your deductions on your tax return. Still, many people take advantage of this deduction to reduce their overall tax liability.

Effect on Taxable Estate and Estate Tax Liability

In addition to the effect on yearly tax liability, lifetime gifts also benefit your estate. The IRS assesses estate taxes on estates of deceased people that are valued above a certain amount (currently about $11.2 million). Estate taxes are very expensive and can decrease the amounts that designated heirs actually inherit from an estate. As a result, decreasing the size of your potentially taxable estate during your lifetime can reduce estate tax liability sometime in the future.

To elaborate, people with substantial or particularly valuable assets can take advantage of lifetime giving. By making gifts to the nonprofits or charitable organizations during their lives, they reduce the total value of their assets. This translates to a smaller estate when it comes time to assess estate taxes. If the gifts lower the estate value enough, no estate taxes will be due. Generosity during your lifetime could also be smart estate planning for the future.

Want to start planning your estate? Local attorney Andrew Szocka, Esq. provides thorough and speedy estate planning help in the Chicagoland area. To schedule a free initial consultation, visit the Law Office of Andrew Szocka, P.C. online or call the office at (815) 455-8430.

Basics of Estate Taxes for Illinois Residents

As an Illinois resident, your estate could owe estate taxes to both the IRS and the state of Illinois if it has a large enough value. People who own highly valued real estate or who have significant assets should learn more about planning for estate taxes.

What Is an Estate Tax?

An estate tax is a tax that your estate pays based on the value of the assets that you own when you die. This is different than an inheritance tax, which taxes any bequests or inheritances that you might receive. There is no federal or Illinois inheritance tax, but both have separate estate taxes.

What Is the Federal Estate Tax?

The federal estate tax applies if you die with a taxable estate of more than $11.18 million as of 2018. In prior years, the threshold was $5.5 million or less. With passage of the Tax Cuts and Jobs Act, the threshold doubled, though it lasts only until 2025 by the current legislation. As a result, only people with very large estates will owe taxes. If you do owe taxes, though, the tax rate can be a staggering 40 percent. Fortunately, the IRS only assesses the tax on amounts that exceed the $11.18 million “exemption” threshold.

What Is the Illinois Estate Tax?

In addition to the federal government, Illinois also taxes estates. The threshold amount is considerably lower – with $4 million or more in your estate, it will owe taxes. The tax rate starts at about 28 percent but may vary when combined with the federal estate tax.

When Might You Need to Do Estate Tax Planning?

Not everyone needs to do estate tax planning – some simply have too few assets to exceed the state and federal thresholds. Those who have valuable assets should take into account the estate tax when creating their estate plans. Your estate might owe taxes later if:

  • You make a lot of lifetime gifts (these count against your federal estate tax exemption)
  • You own extensive real estate that has appreciated in value
  • You may inherit wealth from your spouse or another relative
  • You are a “high earner”

If any item on this list describes you, talk to an estate planning attorney about how to plan for estate taxes. You may need to work on decreasing your taxable estate to avoid owing thousands in taxes later.

Want to start planning your estate? Local attorney Andrew Szocka, Esq. provides thorough and speedy estate planning help in the Chicagoland area. To schedule a free initial consultation, visit the Law Office of Andrew Szocka, P.C. online or call the office at (815) 455-8430.

Will the New Federal Estate Tax Laws Affect Your Estate Plan?

You may have heard that some of the tax laws changed starting in January 2018, but you may not know how the changes will affect your estate plan. The Tax Cuts and Jobs Act made several key adjustments to the estate and gift tax exemption and the annual gift tax exclusion. Depending on your annual giving and the size of your estate, you may need to review your estate plan.

  1. Estate and Gift Tax Exemption

The new tax laws more than doubled the estate and gift tax exemptions from $5,490,000 to $11.18 million per person in 2018, and $11.4 million in 2019. The estate and gift tax exemptions are “unified”, meaning that the IRS assesses tax based on the total value of gifts that you make during your lifetime plus the value of the assets remaining in your estate when you pass away. Previously, tax would be assessed if this total exceeded $5.49 million.

Now, you can have a combination of $11.4 million in lifetime gifts and total value of assets before your estate owes tax. Since the estate tax is assessed at a 40% rate, not having to pay it can save your estate a lot of money.

There is a catch, however – the higher exemption amount expires after the year 2025. Since you may not be able to take advantage of it after then, you may want to keep your existing estate plan in place. For many people with smaller estates, the new laws will have little impact If, however, the previously lower exemption amount substantially impacted the type of planning you have done, you may want to make changes. For example, you may not need some complex trusts or certain types of language in your estate planning documents.

  1. Annual Gift Tax Exclusion

Further, the new tax laws also increased the annual gift tax exclusion from $14,000 in 2017 to $15,000 in 2018 and 2019. The annual gift tax exclusion allows you to give up to the exclusion amount in a given year to a single person without owing gift taxes on the amount.

For example, you could give $15,000 or less to your child and $15,000 or less to your niece in 2018, and you would not owe gift taxes. The IRS does not tax recipients on gifts, so your child and niece would not owe taxes for these gifts either.

While the increase in the annual exclusion may seem minimal, it takes into account inflation and allows people to do more lifetime giving. Lifetime giving reduces the overall value of your estate for tax purposes and for probate.

Want to start planning your estate? Local attorney Andrew Szocka, Esq. provides thorough and speedy estate planning help in the Chicagoland area. To schedule a free initial consultation, visit the Law Office of Andrew Szocka, P.C. online or call the office at (815) 455-8430.

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