The concept of advanced estate planning is related to the income tax and transfer tax. The prime concern of advanced estate planning is to bring down the amount paid for income taxes or property transfer taxes. The amount left after paying the taxes can be used for the further development of the property.
There are different types of property taxes like estate tax, GSTT, gift tax and so on. All these taxes are paid at different times and the amount varies according to the value of the property. The advanced estate planning is used to cut down the amount of taxes paid.
Gift taxes are levied on the activity of offering property, of any value, as a gift to the spouse or to certain charities. There are certain types of property transfers that are not considered for gift tax. Apart from these all property transfer activity are subjected to gift taxes. A provision of “applicable exclusion” is made for the gift taxes and anything that is more than the provided rebate is subjected to 45% of gift tax. This tax is collected while the donor of the property is alive.
The estate tax is deducted after the death of the property-owner. This tax is calculated on the current value of all the properties owned by a particular entity. A number of expenses are deducted from the property value like accumulated debt of the decedent, the cost of transferring the property to the heirs or trusts and every kind of administrative expenses related to the property. The rest of the amount is taxable.
It is also known as the Generation-Skipping Transfer Tax. The tax is levied upon the properties that are offered to the grandchildren by skipping a generation. The tax is additional and is and deducted after the estate and gift taxes are paid. The United States government offers GSTT exemption of $1,120,000 and anything more than this is subjected to this tax.
Most of the properties received by the spouses or the trusts are subjected to income tax as these are regarded as taxable income.
Tools for Advanced Estate Planning:
A number of tools are used for advanced estate planning. These tools are capable of bringing down the property taxes to a certain level. Some of these tools are as follows:
The A/B Trust
The A/B/C Trust
Last Updated on : 30th July 2013