Assessing Your Exposure to the Estate Tax and Gift Tax

29 08 2018

When Congress was debating tax law reform last year, there was talk of repealing the federal estate and gift taxes. As it turned out, rumors of their demise were highly exaggerated. Both still exist and every taxpayer with a high degree of wealth shouldn’t let either take their heirs by surprise.

Exclusions and Exemptions

For 2018, the lifetime gift and estate tax exemption is $11.18 million per taxpayer. (The exemption is annually indexed for inflation.) If your estate doesn’t exceed your available exemption at your death, no federal estate tax will be due.

Any gift tax exemption you use during life does reduce the amount of estate tax exemption available at your death. But not every gift you make will use up part of your lifetime exemption. For example:

  • Gifts to your U.S. citizen spouse are tax-free under the marital deduction, as are transfers at death (bequests).
  • Gifts and bequests to qualified charities aren’t subject to gift and estate taxes.
  • Payments of another person’s health care or tuition expenses aren’t subject to gift tax if paid directly to the provider.
  • Each year you can make gifts up to the annual exclusion amount ($15,000 per recipient for 2018) tax-free without using up any of your lifetime exemption.

It’s important to be aware of these exceptions as you pass along wealth to your loved ones.

A Simple Projection

Here’s a simplified way to help project your estate tax exposure. Take the value of your estate, net of any debts. Also, subtract any assets that will pass to charity on your death.

Then, if you’re married and your spouse is a U.S. citizen, subtract any assets you’ll pass to him or her. (But keep in mind that there could be estate tax exposure on your surviving spouse’s death, depending on the size of his or her estate.) The net number represents your taxable estate.

You can then apply the exemption amount you expect to have available at death. Remember, any gift tax exemption amount you use during your life must be subtracted. But if your spouse predeceases you, then his or her unused estate tax exemption, if any, may be added to yours (provided the applicable requirements are met).

If your taxable estate is equal to or less than your available estate tax exemption, no federal estate tax will be due at your death. But if your taxable estate exceeds this amount, the excess will be subject to federal estate tax.

Be aware that many states impose estate tax at a lower threshold than the federal government does. So, you could have state estate tax exposure even if you don’t need to worry about federal estate tax.

Strategies to Consider

If you’re not sure whether you’re at risk for the estate tax, or if you’d like to learn about gift and estate planning strategies to reduce your potential liability, please contact us.





Take Note of the Distinctive Features of Roth IRAs

29 08 2018

For some people, Roth IRAs can offer income and estate tax benefits that are preferable to those offered by traditional IRAs. However, it’s important to take note of just what the distinctive features of a Roth IRA are before making the choice.

Traditional vs. Roth

The biggest difference between traditional and Roth IRAs is how taxes affect contributions and distributions. Contributions to traditional IRAs generally are made with pretax dollars, reducing your current taxable income and lowering your current tax bill. You pay taxes on the funds when you make withdrawals. As a result, if your current tax bracket is higher than what you expect it will be after you retire, a traditional IRA can be advantageous.

In contrast, contributions to Roth IRAs are made with after-tax funds. You pay taxes on the funds now, and your withdrawals won’t be taxed (provided you meet certain requirements). This can be advantageous if you expect to be in a higher tax bracket in retirement or if tax rates increase.

Roth distributions differ from traditional IRA distributions in yet another way. Withdrawals aren’t counted when calculating the taxable portion of your Social Security benefits.

TCJA eliminated option to recharacterize Roth IRAs.

The passage of the Tax Cuts and Jobs Act late last year had a marked impact on Roth IRAs: to wit, taxpayers who wish to convert a pretax traditional IRA into a post-tax Roth IRA can no longer “recharacterize” (that is, reverse) the conversion for 2018 and later years.

The IRS recently clarified in FAQs on its website that, if you converted a traditional IRA into a Roth account in 2017, you can still reverse the conversion as long as it’s done by October 15, 2018. (This deadline applies regardless of whether you extend the deadline for filing your 2017 federal income tax return to October 15.)

Also, recharacterization is still an option for other types of contributions. For example, you can still make a contribution to a Roth IRA and subsequently recharacterize it as a contribution to a traditional IRA (before the applicable deadline).

Additional Advantages

A Roth IRA may offer a greater opportunity to build up tax-advantaged funds. Your contributions can continue after you reach age 70½ as long as you’re earning income, and the entire balance can remain in the account until your death. In contrast, beginning with the year you reach age 70½, you can’t contribute to a traditional IRA — even if you do have earned income. Further, you must start taking required minimum distributions (RMDs) from a traditional IRA no later than April 1 of the year following the year you reach age 70½.

Avoiding RMDs can be a valuable benefit if you don’t need your IRA funds to live on during retirement. Your Roth IRA can continue to grow tax-free over your lifetime. When your heirs inherit the account, they’ll be required to take distributions — but spread out over their own lifetimes, allowing a continued opportunity for tax-free growth on assets remaining in the account. Further, the distributions they receive from the Roth IRA won’t be subject to income tax.

Many Vehicles

As you begin planning for retirement (or reviewing your current plans), it’s important to consider all retirement planning vehicles. A Roth IRA may or may not be one of them.

Please contact our firm for individualized help in determining whether it’s a beneficial choice.





What a Wonderful Vacation!

8 08 2018

Everyone loves a vacation.  Some are more special or unique than others.  That would certainly describe the most recent vacation taken by RBSK’s own Bob Blankman along with his wife Carol and daughters, Lisa and Megan.  They traveled to Italy for a very special purpose.

They left Indiana on June 30th arriving in Rome on July 1st.  The first part of the trip was devoted to excursions and sightseeing trips.  While in Rome, they visited the Catacombs, the Vatican, including the Sistine Chapel, the Colosseum, the Forum, the Spanish steps and the Trevi Fountain.  A side trip to Assisi was also included.

Then it was off to Tuscany for a wine tasting lunch on July 4th.  From there, they visited Sienna before traveling to Florence.  One of the highlights of the stay in Florence was touring galleries which included the original statue of David by Michelangelo.

Arriving in Florence was the ultimate goal of the trip.  For you see, Bob’s wife Carol is a two-time breast cancer survivor.  Almost 3 years ago she joined the Indy SurviveOars Dragon Boat Racing Team whose home is located at Geist Reservoir in Indianapolis.  This team traveled to Florence, Italy for an international festival for breast cancer survivors hosted by the International Breast Cancer Paddler’s Commission (IBCPC) on July 6th through July 8th.

The IBCPC Dragon Boat Festival is held every four years and is a non-competitive event geared toward teams of breast cancer survivors using dragon boat activities as post-operative rehabilitation.  Canadian sports medicine doctor Don McKenzie introduced dragon boat paddling as a form of rehabilitation after surgery about 20 years ago.  The IBCPC has a total of 129 teams from 17 countries spanning every continent.

The festival was held at Cascine Park, which is the largest public park in Florence and dates back to the 16th century.  The races took place on the Arno River which runs through the outskirts of the park.

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Following a couple of practice sessions and similar to the Olympics, the festivities began the evening of July 6th with a parade of nations through the streets of Florence.  The Blankman family can be seen wearing their parade shirts in the picture above.  A woman from each country carried their nation’s flag followed by the teams participating in the festival from that country.  Each team carried a banner indicating who they were.  A woman from the Indy SurviveOars group had the honor of carrying the American flag followed by 42 teams from the United States.  She was the youngest woman from the United States participating in the festival having survived breast cancer twice at the age of 29.  Pictured below are the Indy SurviveOars participating in the parade.

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The dragon boat races then took place on July 7th and 8th.  Dragon boats are over 40 feet long propelled by a coordinated crew of 20-22 paddlers, a drummer who keeps the pace, and a steerer who guides the craft.  There were enough women who made the trip to Italy for the Indy SurviveOars to field one full team but not enough for two teams.  So, some of the women were part of “composite” teams joining other women from other states or countries to form a full team for the races.  The Indy SurviveOars were a part of 3 “composite” teams joining other women from New York, Vermont and Australia.  Carol and 4 other Indy SurviveOars women joined a team from New York for their races.  Thus, there were 4 teams that included women from the Indy SurviveOars.

It really didn’t matter to the women which team they were on.  Their motto is “One Team, One Blade” with the blade representing the paddle.  This basically means that it doesn’t matter which boat you are in or where you are, we are all in this together.

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Each race consisted of 5 boats racing against each other in a heat.  Carol Blankman (second from the back on the left) can be seen in the picture above paddling with her team in one of the heats.  Each team raced twice each day.  Although this was a non-competitive event, as mentioned previously, once the women were in their boats and racing in their heats, it was very competitive.  Each woman in each boat gave their best effort to not only win their heat, but to also have the best overall time for the two days of racing.  The team consisting of all women from Indy SurviveOars finished 30th out of approximately 125 teams, 11th out of 42 US teams and 2nd among US Midwest teams.  This was their best showing in any of the 3 such festivals in which they have participated.  The picture below shows the view as the boats approach the finish line.

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The most beautiful and meaningful part of the festival occurred at the end of the second day of the races.  Every dragon boat racing event, including festivals, ends with a rose ceremony.  All the boats are linked together in the water, and each woman on the boats holds a rose while a brief talk is given or a short prayer is being said.  Then the roses are tossed in the water to commemorate and remember those women who have lost their battle with breast cancer or have had a reoccurrence, as well as all of those who have had the disease.

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For this ceremony at the festival, music was also playing in the background.  All 4,000 women in attendance wore the same pink T-shirts for the ceremony.  The women who were standing on the side of the river and not in the boats also tossed roses in the water.  It was a very touching and beautiful way to end the festival.

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What a wonderful vacation!!!

For anyone who may be interested in seeing dragon boat racing in person, the White River Alliance in Indianapolis is sponsoring an inaugural White River Dragon Boat Race on Saturday, September 29th.  The White River Races will begin at 8:30a.m. and should end mid-afternoon.  We hope to see you there.