Tag: estate tax

  • The Good & Bad News About Estate Tax

    The One Big Beautiful Bill, now a law, “permanently” increased the maximum lifetime exclusion amount that any US citizen or resident can use to shelter gifted assets or assets passing at death from the federal gift or estate tax. The new estate and gift tax exclusion beginning in 2026 is $15 million per US citizen and resident. The exclusion was originally slated to be reduced to $5 million plus inflation in 2026.

    “Permanent” is only permanent as long as the current administration is in control. However, the estate transfer tax system is a very unpopular tax. Consider three reasons why the federal estate tax exemption most likely will not be reduced:

    1) In the past 100 years, the exclusion has only increased. In the 1980’s, the estate tax was $600,000.

    2) Congress, who is in charge of increasing or decreasing the exclusion, for the most part, is made up of wealthy individuals. Would they pass a law that negatively impacts themselves?

    3) The estate transfer tax feels very distasteful to so many US citizens and residents. When Frank Luntz, a wordsmith, helped then-President Bush paint a negative perspective about the estate tax, he renamed the estate transfer tax “The Death Tax.” Immediately, US citizens and residents felt it was an unfair tax. As the saying goes, “How can we ask families to visit the taxman and the grave-digger on the same day?”

    YIM & YEMPUKU LAW FIRM
    2054 S. Beretania St., Honolulu, HI 96826
    808-524-0251 | yimandyempukulaw.com

    The One Big Beautiful Bill, now a law, “permanently” increased the maximum lifetime exclusion amount that any US citizen or resident can use to shelter gifted assets or assets passing at death from the federal gift or estate tax. The new estate and gift tax exclusion beginning in 2026 is $15 million per US citizen…

  • Estate and Gift Tax Exemption Changes

    Hau‘oli Makahiki Hou! We hope 2025 is filled with prosperity, vitality and good health for you and your loved ones!

    If Congress doesn’t act, the federal lifetime estate tax and gift tax exemption is due to sunset at the end of 2025 and will revert back to the 2017 exemption amount of approximately $5.6 million per individual, adjusted for inflation. This would result in a significant increase in the number of estates subject to federal estate tax and a higher estate tax liability for estates already subject to the tax.

    Currently per person, the Hawai‘i estate and gift tax exemption is $5.49 million and the federal lifetime estate and gift tax exemption is $13.61 million (or $27.22 million per married couple). If you are married, under the current estate tax exemption and have separate trusts, it may be a good time to explore a joint trust. A joint trust can significantly reduce or even eliminate capital gains tax for your children, should they sell inherited real estate or other appreciating assets.

    If you are hedging up to the current estate tax exemption or you exceed the estate tax exemption, contact your estate planning attorney to see how possible changes to the estate and gift tax exemption may affect you.

    YIM & YEMPUKU LAW FIRM
    2054 S. Beretania St., Honolulu, HI 96826
    808-524-0251 | yimandyempukulaw.com

    Hau‘oli Makahiki Hou! We hope 2025 is filled with prosperity, vitality and good health for you and your loved ones! If Congress doesn’t act, the federal lifetime estate tax and gift tax exemption is due to sunset at the end of 2025 and will revert back to the 2017 exemption amount of approximately $5.6 million…

  • Beware: It’s the Return of the Estate Tax

    The good news is that the federal estate tax took a vacation in 2010. The bad news is that it spent the whole year lifting weights and taking steroids. The estate tax is coming back in 2011, as big and bad as it has been in a long time. Now is the time to review your estate plan and make changes that could drastically affect how much of your estate goes to your loved ones, and how much goes to the IRS.

    Between 2001 and 2009, Congress gradually reduced the maximum rate of the federal estate tax from 55% to 45%. It also gradually increased the “coupon” (the amount of property that you could pass tax-free) from $675,000 per person in 2001 to $3.5 million per person in 2009. That means that with basic estate planning, a married couple could pass up to $7 million free of federal estate tax, if they both died in 2009.

    Then, in 2010 only, the estate tax was repealed. But like a horror film character who just won’t die, the estate tax returns again on January 1, 2011—only with a $1 million coupon and a 55% tax rate!

    To pay for the 2010 estate tax vacation, Congress replaced the estate tax with an increased capital gain tax. Before 2010, any assets that passed to someone when you died would be valued at fair market value at the date of death. If your surviving spouse or heirs sold any assets that had increased in value during your lifetime, they would not have to pay capital gain tax on any of that growth. This is called a “step-up in basis.”

    But in 2010, property that passes at death does not automatically receive this step-up in basis. Instead, each individual has a limited amount of property that can be “stepped-up” in value at the time of death. Property that does not receive this step-up value will be subject to tax on the increase in value from the date you first acquired the property. This means that the property could be exposed to huge capital gain tax liability if it is sold by your heirs!

    Now is the time to look into how your estate will be affected by the return of the estate tax. Contact your trusted advisors to find out what changes should be made to your “rule book” —the set of documents that will say what happens to your stuff after you are gone. You may have some prime opportunities to make a huge difference in the amount of your estate that goes to your loved ones. You may even be able to “disinherit” the IRS entirely.

    SCOTT MAKUAKANE is a lawyer whose practice has emphasized estate planning and trust law since 1983. He hosts Est8Planning Essentials, a weekly TV talk show which airs on KWHE (Oceanic channel 11) at 8:30 p.m. on Sunday evenings. For more information about Scott and his law firm, Est8Planning Counsel LLLC, check out www.est8planning.com.

    The good news is that the federal estate tax took a vacation in 2010. The bad news is that it spent the whole year lifting weights and taking steroids. The estate tax is coming back in 2011, as big and bad as it has been in a long time. Now is the time to review…

  • The Future of Estate Tax

    You have spent a lifetime of earning, saving and investing — and paying income and capital gains taxes all the way along. So you may wonder why our government feels entitled to tax the value of everything that’s left when you die. The sad fact is, however, that the IRS and the State of Hawai‘i are going to want a piece of your estate.

    In fairness to our government, the estate tax law currently provides sizable exclusions from the estate tax. Hawai‘i allows the first $3.5 million of your estate to pass tax free, and the U.S. is a bit more “generous.” The Federal exclusion is $5 million for 2011, and it will be adjusted for inflation (presumably upward) in 2012, so that it will be some number in excess of $5 million. Ok, since many of us don’t own house multi-million homes, you may think you’re safe … but read on.

    What the exclusions mean is that if a Hawai‘i resident dies in 2011 or 2012 with an estate valued at no more than $3.5 million, there will be no Federal or Hawai‘i estate tax. If the estate is worth between $3.5 million and $5 million, there will be Hawai‘i estate tax, but no Federal estate tax. Once the estate exceeds $5 million, both Hawai‘i and the IRS will take a bite out of the estate.

    The Hawai‘i tax is charged at effective rates that begin at 9.6% for estates that exceed $3.5 million, and they range up to 16% for estates worth in excess of $10,040,000. The Federal rate is currently a flat 35%.

    But then a funny thing happens in 2013. The Hawai‘i rules are currently set to stay the same, but the Federal rules are scheduled to change radically. In 2013, the Federal exclusion will drop from $5 million to $1 million, and the tax rate will soar from 35% to 55%. RED ALERT! A $5 million exclusion means most of us are safe from Federal estate tax, but a $1 million exclusion means that most of us who own a house and have a retirement plan and some life insurance need to be concerned about what will be left for our loved ones after the tax man takes his piece.

    In the midst of all of this, the winds of legislative change are swirling. Among other changes, the Hawai‘i legislature is considering whether the Hawai‘i exclusion should match the Federal exclusion (whatever it happens to be at the time), and Congress is considering whether to set the exclusion at $3.5 million (at least until the next round of changes).

    At this point, the only thing we can be sure of is that we can’t be sure of what the rules are going to be in two years. This makes planning difficult, but not impossible. The uncertainty highlights the fact that we have to stay on top of our estate plans and make sure that they stay current with changes in the law so our loved ones don’t end up paying tax that could have been avoided.

    If you have not updated your estate plan within the past year, it is time for you to consult your estate planning advisors to make sure your plan will work as intended. Even if your plan is current as of now, beware that imminent changes to the law may make it obsolete in the very near future.

    You have spent a lifetime of earning, saving and investing — and paying income and capital gains taxes all the way along. So you may wonder why our government feels entitled to tax the value of everything that’s left when you die. The sad fact is, however, that the IRS and the State of Hawai‘i…