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Estate Tax Planning – 2015

Author: Linda Grear

January 12th, 2015

As 2014 comes to an end, it is a good time to assess your estate plan. For many, estate planning is something they realize they should do, but they keep postponing. With the dawn of a new year, it is time to consider management and protection of assets during lifetime and controlling distribution following death so you may leave a legacy for your loved ones.

Effective estate planning may reduce estate taxes, which will benefit you and your family financially. In the face of ever-changing tax laws, there is growing concern about how to best protect assets and secure them for future generations.

Anticipating your potential estate tax liability is a great place to start planning. The current estate exemption equivalent for New York State residents is $2,062,500. The first $2 Million of assets are exempt from NYS estate tax and any amounts over $2 Million will be subject to NYS estate tax. The New York State Estate Tax Exemption will be increasing to $3,125,000.00 for decedents dying after April 1, 2015.

For the year 2014, the Federal estate tax exemption will be $5,430,000.00 for decedents dying after January 1, 2015. Any assets over that threshold will be subject to Federal estate taxes.

Estate taxes are due within nine months after the date of death. Therefore, advance planning is key to addressing tax liability.

Below is a brief overview of the various estate planning techniques that may shield assets from future estate tax liability.

Last Will and Testament with Disclaimer (credit shelter trust) provisions: This technique provides a married couple the opportunity to utilize estate tax exemptions of each spouse while giving the surviving spouse the opportunity to elect how much he/she shall receive from the deceased spouse’s estate. Any assets disclaimed or renounced by the surviving spouse are held in trust for the benefit of the surviving spouse. The trust assets are distributed to the ultimate beneficiaries only upon the death of the surviving spouse. The use of a Disclaimer Will may result in significant estate tax savings.

Annual Gift Tax Exclusion: One of the simplest ways to reduce the size of your estate would be to begin making annual gift tax exclusion gifts. An annual exclusion from gift taxes applies to each person to whom you make a gift. In 2015, you will be able to gift up to $14,000 each to any number of individuals without those gifts being taxable.


  1. Allows you an opportunity to reduce the size of your taxable estate.
  2. No gift tax returns are required if the gifts are $14,000 or less each year.
  3. You can make these gifts each year, thereby dramatically reducing the size of your estate.
  4. Receipt of the gift is not taxable to the recipient (unless the item gifted was a tax-deferred asset).

Payment of Tuition and Medical Expenses: Tuition payments made directly to a medical or educational institution are not taxable gifts. The payment must be made directly to the medical or educational institution providing the services. Please note that the exclusion covers tuition payments but not books, supplies, board and dorm fees.


  1. Allows you an opportunity to reduce the size of your taxable estate.
  2. Allows you an opportunity to make additional gifts over and above the annual gift tax exclusion.
  3. This unlimited exclusion can be used for all levels of education.
  4. This exclusion is permitted for tuition expenses of full-time or part-time students.

Irrevocable Life Insurance Trust: A life insurance trust is a vehicle by which the grantor gifts money to the trust and the trust, in turn, buys a life insurance policy on the life of the grantor. When the grantor dies, the life insurance proceeds are paid to the trust and distributed to the beneficiaries designated within the trust. This is a good wealth replacement tool to offset projected estate taxes to be paid.


  1. Provides a liquid pool of funds to pay estate taxes, which are due within nine months of date of death.
  2. The value of the life insurance policy is not included in the grantor’s
    estate because it was not owned by the grantor.

These are just of few of the available estate planning techniques. In estate planning, timing is critical for the proper protection of your assets to ensure security for future generations and starting sooner rather than later is most important. If you have any questions about the above material, or wish to speak to an attorney, please contact HoganWillig at (716)636-7600. HoganWillig is located at 2410 North Forest Road in Amherst, New York 14068, with additional offices in Buffalo, Lancaster, and Lockport.

Beware of Scams During Tax Season

April 9th, 2014

Heading into April, tax season is now in full swing.  With the April 15th “Tax Day” due date quickly approaching, Americans filing their income taxes should be aware of increasingly-sophisticated scams.  Geared towards taxpayers eager to secure a large refund, the scammers employ a wide range of tricks to prey on individuals.  One practice that accounts for a significant portion of tax fraud incidence is identity theft.  A crook will use stolen social security numbers to file fake tax returns for the refunds; this usually occurs early on in the season before people have time to file themselves.  The IRS also warns taxpayers to use caution in regards to phone calls and emails from people claiming to be from the IRS or promising large refunds.  Another scam to watch out for is return preparer fraud; tax preparers may claim inflated expenses, claim fake deductions, inflate deductions, or manipulate income figures.  They, in turn, profit from the inflated returns.  If a tax preparer encourages you to exaggerate figures or sign a blank return, he or she should most likely be avoided.  Being informed about these tricks, in addition to using a trustworthy preparer, is the best defense against tax scam!

IRS develops rule on same sex marriage after Windsor

Author: Hogan Willig

September 6th, 2013

On June 26, 2013, the U.S. Supreme Court decided United States v. Windsor, a case involving a same sex couple married in New York, where such marriages are authorized.  One of the women died leaving a substantial estate.  An estate tax return was filed and the surviving spouse, because of the Defense Of Marriage Act (DOMA), was not entitled to the unlimited spousal deduction that heterosexual couples could take advantage of generally reducing the estate tax on the first death to zero.  The spouse filed the return, the IRS disallowed the spousal deduction, and the surviving spouse sued for a refund of taxes paid.

The Supreme Court decision, effectively, determined that DOMA was unconstitutional and that the taxpayer should be treated the same for federal tax purposes whether a traditional married couple or same sex married couple.

In response to the ruling, the Treasury Department (which runs the IRS) needed to change its rules about same sex marriages so that the income and estate taxes would now be the same for either couple.

One question not answered by the Supreme Court was “What if a same sex couple married in a state that allowed such marriage, but now resided in a state which did not?”  As part of its rules to comply with Windsor, the IRS has ruled on this as well.

Revenue Rule 2013-17 was issued on August 29, 2013 (operational September 16, 2013).  This Revenue Rule uses the prior rulings of the IRS regarding “common law marriage” to establish a blanket rule for all married couples.  In 1958 the IRS determined that couples recognized as married in common law states – that is where no formality of marriage is required – but then moving to another state where a ceremony is required are still married for tax purposes.  Now the same rationale is held for same sex married couples.  The key is where you were married.  If married and living in a state that recognizes same sex marriage, you are married for federal tax purposes. If you are married in state that recognizes the marriage and then move to a state that does not, for federal tax purposes you will be treated as married -entitled to all of the benefits (and costs) that are associated with the marriage – wherever you are.  This rule does not affect the tax schemes of any individual states or localities.

Caveat- Under the Revenue Rule -Domestic Partnerships and Civil Unions are not marriage and so are not treated as such under the tax code.

For same sex couples the income and estate tax planning techniques long used are now available, but so are the marriage penalty and other tax negatives.  So, be sure to see your tax advisor.  We at HoganWillig can help you in your planning needs.

A New Tax Law – Again!

Author: Hogan Willig

January 10th, 2013

The American Taxpayer Relief Act of 2012

Well, here we are a new year and another new tax law. The American Taxpayer Relief Act of 2012 came to be on January 2, 2013. The law addresses the expiring “Bush Era Tax Cuts” previously addressed on this blog and many, many, other places. Here is what the new tax law does for individuals- note that the fixes are made permanent unless otherwise noted. An important note, “permanent” means there is no set expiration; it does not mean the law cannot be changed again. Finally, not every aspect is addressed here.

First, all wage/salary earners are having 2% more withheld from their paychecks. The law allows the expiration of the 2 year Social Security Payroll Tax “holiday”. This holiday allowed a wage earner to keep an extra 2% in their pay but receive credit in their Social Security account for the tax – meaning it would not reduce benefits later.

Income Tax:

  • Personal income tax rates remain the same as 2012 rates for individuals with taxable income below $400,000 ($450, 000 married filing joint, $425,000 for Head of Household, $225,000 married filing separately). A “new” marginal rate is added for those above the $400,000 threshold.

The personal income tax rates are now –

  • 10%, 15%, 25%, 28%, 33%, 35% and 39.6%
    (pre- “Bush Era” rates – 15%, 28%, 31%, 36%, and 39.6%)

The positive for the over $400,000 level is the lower rates for the income below that level.

  • The brackets are now permanently adjusted for inflation
  • Long Term Capital Gains (assets held a year or more) have a new, higher, top rate. Taxpayers in the 39.6% rate bracket will have Long Term Capital Gains taxed at 20%; while the lower tax brackets will continue to have those gains taxed at 15%, or 0%


Bracket 10% 15% 25% 28% 33% 35% 39.6%
Long term gain (held longer than 1 year) 0% 0% 15% 15% 15% 15% 20%
  • Dividends: Qualified Dividends continue to be taxed at the applicable long term capital gains rate for the individual.
  • Alternative Minimum Tax: Each year for some time the AMT has been “patched” to avoid a large slice of the American public being drawn in. The issue was that the AMT was never automatically adjusted for inflation, so as wages increased due to inflation, more taxpayers were ensnared in a low level AMT. With the 2012 Act, the base level of AMT exemption is increased and is then adjusted for inflation annually. This is particularly beneficial in states like New York where taxes are high. The deduction for such taxes is limited or lost if you exceed the AMT exemption amount.
  • Marriage Penalty: “Married filing joint” taxpayers will continue to have a standard deduction double that of “single” filers.
  • Limitations renewed: The 2012 Act did revive the so called “Pease Limitation” on itemized deductions and the phase-out on the personal exemption. For Married filing Joint above $300,000 ($150,000 single) these revived limitations kick in.
  • Child Tax Credit: The $1000 per child tax credit continued.
  • Earned Income Tax Credit: This credit continued through 2017.
  • Adoption Credit: made permanent at its higher level and now to be inflation adjusted.
  • Dependent Care Credit: Eligible expenses cap remains $3,000 ($6,000 for more than one qualifying individual); also maximum credit remains 35% of the qualifying expense.
  • Education incentives:
    • American Opportunity Tax Credit – extended to 2017 – per eligible student:
      • 100 % of first $2,000 in qualified tuition and related expenses
      • 25% next $2,000 (making max credit $2,500)
      • Applies to first 4 years of higher education
    • Qualified tuition and expenses deduction: to end of 2013
      • So called above the line since it reduces AGI
      • Cannot use in year taking American Opportunity credit or Lifetime Learning Credit
    • Energy Incentives – the 2012 Act extends the $500 lifetime credit for energy efficiency improvements to your home ($200 for windows/skylights) – expires at the end of 2013.
  • Estate/Gift Tax:Exemption/Credit Shelter remains $5 million per person and is adjusted for inflation annually (2013 $5.25 Million). The new law retains the unified credit as well. This means that you may pass the credits shelter amount during life or after death.

    Annual exclusion amount – no change here. Continues to be inflation adjusted – $14,000 per donee in 2013.

    Estate Tax rates increase with the maximum marginal rate to 40%.

    State Death Tax Deduction – maintained (not a credit).

    Portability – retained

    Generation Skipping Transfer Tax – the GSTT changes also continues without sunset.

  • Affordable care Act Taxes: While not part of the 2012 Act, there are several taxes that will be payable beginning in 2013. These taxes start at lower income thresholds than those under the 2012 Act.
    • 0.9% tax on earned income:
      • Employee tax – Employer not taxed but must withhold
      • Wages/Self-employed income in excess of
        • $250,000 married filing jointly
        • $125,000 married filing separately
        • $200,000 single (and other tax filing statuses)
      • 3.8% tax on “Net Investment Income”:
        • things like interest, dividends, net gains
        • Same income thresholds for 0.9% tax
      • Not indexed for inflation.

There are many more continuations and revisions in the American Taxpayer Relief Act of 2012. This summary is only some more popular concerns.

As always, consult with your personal tax and legal professionals to see how these changes and others may apply to you.

Where do I reside? Am I a New Yorker?

Author: Kenneth Olena

November 26th, 2012

The issue of a person’s legal place of residence has significance in matrimonial proceedings and other legal matters affecting where you can sue or be sued or where you must pay taxes among others. Legal residence is primarily a function of intent. To put it simply, your place of residence is where you intend it to be. When an issue arises such as residence for legal purposes, there are various factors that courts or other governmental agencies look at to determine your place of residence. Included in these factors are: where do you vote; what jurisdiction issued your driver’s license; where are your bank accounts; where do you or your children attend school; where do you own property; how much time do you spend in one state or another; where is your investment advisor; your doctor; your dentist?

The above tests help determine if your actual residence matches your declared intention. In some situations in New York, a bright line test is used. In determining if you are a NY residence for income or estate tax purposes , the Dept. of Taxation and Finance looks at the above factors, but if you spend too much time in the state, these factors make no difference. The same holds true for New York City income taxes.

Duration of residence is also important. In New York, a minimum of one years residence is necessary before commencing an action for divorce. For active duty military and their families, the state of legal residence is their declared “home of record.” This can be the state from which the serving member entered the service, or any other state in which they were, for a time, stationed. The home of record remains their state of legal residence until they declare an intention to establish legal residence elsewhere. This is true even if they are absent fro the state of declared residence for months or even years.

Expiring Tax Law May Take Substantial Opportunity With It

Author: Hogan Willig

July 23rd, 2012

Back in December 2010 there was a much reported flurry of work done on changes to the US Tax laws. One of the big changes was to increase the amount an individuals could pass free of estate or gift (“transfer”) taxes. The changes made it possible to pass during $5,000,000 you life or at death (or combination thereof) without paying either of the transfer taxes. This “exemption amount” was substantially more than in prior years. (The amount is adjusted for inflation and is $5,120,000 for 2012.) Additionally, the then new law made it possible for spouses to share this amount so that a surviving spouse could use any unused portion of a predeceased spouses $5,000,000.

This new exemption equivalent, along with the continued annual $13,000 annual exclusion, now made it possible for business owners and families with highly appreciated assets or businesses to pass substantial wealth to their families transfer tax free. That is not to say only people with more than $10,000,000 can benefit, but everyone with more than $1,000,000 in estate taxable items may find advantages.

File Your Return Even If You Can’t Pay!

Author: Hogan Willig

April 16th, 2012

As April 17, 2012 approaches; tax day for the 2011 Individual Income Tax, the question becomes, “file or don’t file my return?” Setting aside tax protest issues – sternly addressed by courts, this question often arises when a taxpayer does not have the money to pay their tax bill. This inability to pay is never acceptable to the IRS as “reasonable cause” not to file your return.

Failing to file your return on time results in some serious penalties and interest on any tax due. The “failure to file penalty” is 5% per month on the tax due, capped at 25% of the tax due. There is also interest charged each month on the tax due – and the penalty. Additionally, the interest never caps and continues to accrue until full payment is made.


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