2014 Estate Planning Annual Newsletter
2014 Estate Tax Update
Federal Estate Tax, Gift and Generation-Skipping Tax Exemptions
The 2014 federal exemption against estate, gift and generation-skipping taxes is $5,340,000 per person. This is an increase over the 2013 rate, which was $5.25 million per person. The increase is due to the inflation adjustment and absent further Congressional action, the exemption will continue to increase with inflation adjustments in future years.
State Estate Tax Exemption
The 2014 Washington state estate tax exemption is $2,012,000. This is an increase over the 2013 rate, which was $2,000,000. As of January 1, 2014, the state estate tax exemption became inflation adjusted, and the increase over the 2013 rate reflects this.
In 2014, each Washington estate in excess of the $2,012,000 exemption will be subject to state estate tax at rates of 10% to 20%. This represents a slight adjustment to the 2013 rates of 10-19%.
Federal Gift Tax Annual Exclusion
The annual exclusion against federal gift tax remains at $14,000 for 2014.
Federal and State Tax Summary
The chart below outlines the federal and state exemptions and tax rates for 2009 through 2014.
|
Federal |
Gift Tax |
GST Tax |
WA State |
||||||
|
Year |
Rate |
Exemption |
Rate |
Exemption |
Annual Exclusion |
Rate |
Exemption |
Rate |
Exemption |
|
2009 |
45% |
$3.5M |
45% |
$1M |
$13,000 |
45% |
$3.5M |
10% – 19% |
$2M |
|
2010 |
35%* |
$5M* |
35% |
$1M |
$13,000 |
0% |
$5M |
10% – 19% |
$2M |
|
2011 |
35% |
$5M |
35% |
$5M |
$13,000 |
35% |
$5M |
10% – 19% |
$2M |
|
2012 |
35% |
$5.12M |
35% |
$5.12M |
$13,000 |
35% |
$5.12M |
10% – 19% |
$2M |
|
2013 |
40% |
$5.25M |
40% |
$5.25M |
$14,000 |
40% |
$5.25M |
10% – 19% |
$2M |
|
2014 |
40% |
$5.34M |
40% |
$5.34M |
$14,000 |
40% |
$5.34M |
10% – 20% |
$2.012M |
| * Executors may elect to use the old 2010 regime with 0% federal tax and modified carryover basis | |||||||||
Asset Protection Update
Keeping Separate Property in a Divorce Just Got Harder
In Washington dissolutions, the court must divide both community and separate property and liabilities in a just and equitable manner, regardless of either party’s behavior during the marriage. Usually, each party retains his or her separate property and the courts simply split the community property in such a way as to achieve a fair result. However, in an unusual ruling at the end of 2013, a Washington court awarded Wife all of her separate property (worth almost $700,000) and 100% of community property (worth $139 million with no debt). In addition, the court awarded Wife more than $40 million of the Husband’s separate property. Husband appealed the decision, conceding to the award of Wife’s separate property and all of the community property to her, but objecting to the award of a portion of his separate property to her. The appellate court recognized that this was not a typical case that focused on making sure each family member was housed, clothed and fed. Instead, the court focused on whether the trial court had justification for its award of Husband’s separate property estate to Wife, and given the facts and legal circumstances, it found that the trial court was well within its authority. Full text of ruling here.
In light of this recent decision, we are advising clients to reconsider making gifts or bequests outright to their children. Instead, we are recommending that our clients use trusts to receive gifts and bequests. These trusts can give children full access to the inherited funds, but ensure that they remain out of the reach of the courts, and protected from creditors and potential ex-spouses.
Estate Planning Update
Estate Planning for Digital Assets
Have you ever wondered what happens to your online photos or iTunes account after you die? Will your Agent have access to your email to continue paying your bills if you’re incapacitated? As we move quickly towards a paperless world, it is more important than ever to consider digital assets in your estate planning. Read more.
Estate Planning for Intellectual Property
Does your estate contain intangible intellectual property (IP) such as trademarks, copyrights, or patents? Unlike tangible property (real estate, cars or jewelry), IP rights constitute intangible personal property. This important distinction impacts estate planning and the administration of your IP assets after death. Whether your IP rights are a significant source of wealth or only a small fraction of your estate, you should learn how to address these rights in your estate plan. Read more.