It’s Time to Review Your Estate Plan Given Uncertainty In The Tax Law.

Bush Estate Tax Cuts expire December 31, 2025 – Here is what you need to know.

In 2001 and 2003 under President Bush temporary tax cuts were enacted through through two pieces of legislation: the Economic Growth and Tax Relief Reconciliation Act (EGTRRA) and the Jobs and Growth Tax Relief Reconciliation Act (JGTRRA). Both measures were renewed in 2012 and 2017. Some of these tax cuts that have been enacted over the past 20 plus years are set to expire December 31, 2025, such as the Estate and Gift provision from the Tax Cuts and Jobs Act (TCJA) of 2017.

Estate and gift taxes – current law

The estate and gift provision in the TCJA of 2017 had a major impact on many people who may have a taxable estate in the future. The TCJA doubled the federal lifetime gift tax exemption amount, from $5.49 million in 2017 to $11.18 million in 2018 per individual. Under the TCJA, this higher exemption amount was then indexed for inflation in each subsequent each year.

In 2024, each individual has a combined federal estate and gift tax exemption of $13,610,000 (less any prior gifts made during life). This means that for federal tax purposes, in 2024 an individual can make lifetime gifts totaling up to $13,610,000 to anyone or transfer at death up to $13,610,000 (less any gifts made during life) to anyone without triggering the imposition of the federal estate and/or gift taxes. Married couples have a combined exemption, allowing them to make gifts during their lifetimes totaling $27,220,000. Any gifts during life or transfers at death with a value in excess of the available exemption amount will be subject to a federal estate and/or gift tax at a rate of 40%.

Estate and gift taxes – consequence of expiration of current law

After December 31, 2025 exemptions from estate and gift taxes will revert to pre-TCJA levels of around $5 million, adjusted for inflation. The lifetime gift and estate tax exemption, which was more than doubled by the 2017 tax reform bill, will go up with inflation in January 2025, then go down to near-2017 levels in January 2026 unless and until Congress steps in. If no action is taken by Congress by the end of 2025, then under the current law, on January 1, 2026, the federal lifetime exemption amount will be reduced to approximately one-half of the current value. Based on the rate of inflation, the exemption as of January 1, 2026 will be approximately $7 million per person.

We recommend that you review your assets, income and living expenses, then project those numbers out for your expected lifetime. Any excess assets remaining after your projected lifetime expenses is what you should consider to include in a revised estate plan that will not be burdened by a decrease in the estate and gift tax exemption.  Not taking full advantage of the gift tax exemption before it drops in two years could result in a much smaller estate for your heirs.

Leverage 2024 gifting limits

Based on the 2024 gifting limits a direct gift of cash, securities or other assets with a value up to the lifetime exemption is a simple was to gift money or part of inheritance. Furthermore, you can use the annual gift tax exclusion — $18,000 in 2024, $36,000 for couples — to make yearly gifts to as many people as you like. For example, you can make a payment directly to a school to cover a child’s or grandchild’s tuition, or to a medical provider for health expenses, without incurring taxes. Neither “free” nor annual exclusion gifts count toward your lifetime gifting limit, and these rules are not slated to change in 2026.

Family Limited Partnerships or LLC’s

For estates that have substantial real estate holdings, it is beneficial to have such real estate owned by a limited liability company (“LLC”) and then all of the LLC interests owned by a Family Limited Partnership (“FLP”).  As the owner of an FLP, you can then make gifts of limited partner interests in the FLP to family members at gift tax values that are discounted for lack of marketability and minority interests.  These discounts essentially provide a great mechanism by which you can leverage your gift tax exemption to reduce your taxable estate.  As the general partner of the FLP, you still control the management of the LLC’s.

Irrevocable Trusts

Rather than gifting cash or assets, alternatively, an irrevocable trust permits withdrawals based upon a schedule and conditions that you determine. This allows you to maintain a level of control over how and when the beneficiaries will receive distributions. When choosing which assets to gift or place in a trust it is important to look at what assets or gifts you expect will keep growing. When you gift assets using your lifetime gift tax exemption, the assets are transferred at today’s value, and there’s no tax to the beneficiaries. You can gift these assets using your lifetime gift tax exemption, allow heirs to have the current benefit and the gift or asset may experience appreciation in future years. It is important to have a skilled trusts and estates attorney draft documents, such as trust, so there are no issues with your estate.

What Should You Do?

Two years may seem like a lot of time to adjust your estate plans, however, unless you’re simply making large cash gifts, developing a new plan will involve detailed conversations and analysis. Whether your existing estate plan was created recently or a while ago having a conversation with your estate attorney now can help you make better-educated decisions about your family’s future. Furthermore, drafting of documents and trusts can be done by a professional tax and estate attorney who can guide you through the complexities, nuances, and changes in estate and gift tax law.

That is why it is worth reaching out to a Trusts and Estates and/or Probate Attorney such as the at the Law Offices Of Jeffrey B. Kahn, P.C. We are always thinking of ways that our clients can save on taxes, trusts and estates planning, and probate matters. Whether or not a will exists, the expertise of a skilled lawyer at the Law Offices Of Jeffrey B. Kahn, P.C. is needed to help protect the interests of the parties involved. The tax attorneys at the Law Offices Of Jeffrey B. Kahn, P.C. located in Orange County (Irvine), Los Angeles and elsewhere in California are highly skilled in handling tax and probate matters and can effectively represent at all levels with the IRS and State Tax Agencies including criminal tax investigations and attempted prosecutions, undisclosed foreign bank accounts and other foreign assets, and unreported foreign income. Also, if you are involved in cannabis, check out what our cannabis tax attorney can do for you. Additionally, if you are involved in cryptocurrency, check out what a bitcoin tax attorney can do for you.

Is your inheritance from a deceased family member’s estate held up due to the decedent’s outstanding tax returns or outstanding tax liabilities? Read this for your options …

Probate is the field of law that determines how an estate must be divided. Each state has its own laws and statutes requirements to determine if and how an estate must be probated. The probate court will supervise the process when a deceased person (a decedent) leaves assets to distribute, such as bank accounts, real estate, and financial investments with or without a Will. The probate court provides the final ruling on the division and distribution of assets to beneficiaries.

In many cases, the decedent has established documentation, which contains instructions on how their assets should be distributed after death and designates in such documents who oversees implementing this process.  This involves collecting the deceased’s assets to pay any remaining liabilities on their estate and distributing the assets to beneficiaries. Where a decedent fails to establish such documents while alive, State law and the probate courts will dictate how the estate is administered and to whom assets get distributed to.

Probate With a Will 

A deceased person with a Will is known as a testator and he or she is deemed to have died “testate.” When a testator dies, the person designated as the executor under the Will is responsible for initiating the probate process. The probate process for a testate estate includes distributing the decedent’s assets according to the Will.

Probate Without a Will 

When a person dies without a Will, a person is to have died intestate. An intestate estate can also occur when a written Will is presented to the probate court and the probate court has been deemed the Will to be invalid. The probate process for an intestate estate includes distributing the decedent’s assets according to State law.

What Is The Probate Process?

A probate court proceeding begins with the appointment of an administrator or executor to oversee the estate of the deceased person. Such personal is typically called the “personal representative.”  The personal representative receives all legal claims against the estate and paying off the outstanding debts. Also, the personal representative is tasked with locating any legal heirs of the deceased, including surviving spouses, children, and parents. Then the probate court will assess what assets need to be distributed among the legal heirs and how to distribute them.

The probate process can take a long time to finalize and can become costly, therefore it is important to know whether a probate is required following the death of an individual. The more complex or contested the estate is the more time it will take to settle and distribute the assets. Furthermore, the proceedings of probate court are publicly recorded so avoiding probate would ensure that all settlements are done privately.

Note though that having a Will does not mean that probate is avoided, it just serves a roadmap for the probate court. There are several options involved with end of life planning to help avoid the probate process.

Don’t think that a death of a taxpayer will make the IRS go away

If a decedent died owing taxes, the decedent’s Estate will be pursued by the IRS until the outstanding amounts are paid. Under the Statute Of Limitations For Collections, the IRS has up to 10 years from when a tax assessment has been made to enforce payment.  The last date for the IRS to enforce payment is called the Collection Statute Expiration Date (“CSED”). Whether there are any past outstanding tax returns or the current year of death return, the Administrator of the Estate, or other appropriate person, will need to get these tax filings up to date report all income made during the year prior to their death and file the necessary decedent’s tax return. Additionally, if the Estate is receiving income, the Estate must also file fiduciary income tax returns (Form 1041).

Who pays the decedent’s taxes?

The tax liabilities of the decedent or the decedent’s estate would be paid from the estate’s assets under a certain priority to claims of other creditors and before any distributions are made to the heirs and beneficiaries.  Such a process would be supervised by the probate court if the estate is being probated. Usually, collection of a decedent’s tax liabilities are limited to the assets of the estate. However, you may be required to pay the decedent’s taxes to the extent of assets you received from the decedent’s estate.

What if the estate is insolvent?

An estate is deemed to be insolvent when its liabilities exceed the value of the estate’s assets.  In this scenario, the taxes may go unpaid when there are insufficient funds to pay the decedent’s taxes. The IRS cannot transfer the tax to another person, except to a surviving spouse if the underlying tax liabilities come from joint income tax return that the surviving spouse filed with the decedent. In this case, the IRS may collect the tax balance from the decedent’s spouse.

IRS And State Tax Agencies Treated Like Any Other Creditor.

As part of the process of probate or any other estate administration including the administration of a trust, all creditors of the decedent including the IRS and any State Tax Agency must receive notice of the administration in order to establish the statutory period of time for such a creditor to file a claim.  Failure to provide such notice extends the time for a non-noticed creditor to file a claim.   When a claim by a creditor is filed, the Estate will have the opportunity to object to the claim and ultimately the probate court will determine whether the claim is stricken, modified or affirmed.

What Should You Do?

Don’t let a decedent’s unpaid tax liabilities get in the way of your inheritance.  At the Law Offices Of Jeffrey B. Kahn, P.C. we are always thinking of ways that our clients can save on taxes, trusts and estates planning, and probate matters. Whether or not a will or trust exists, the expertise of a skilled lawyer at the Law Offices Of Jeffrey B. Kahn, P.C. is needed to help protect the interests of the parties involved. The tax attorneys at the Law Offices Of Jeffrey B. Kahn, P.C. located in Orange County (Irvine), Los Angeles and elsewhere in California are highly skilled in handling tax and probate matters and can effectively represent at all levels with the IRS and State Tax Agencies including criminal tax investigations and attempted prosecutions, undisclosed foreign bank accounts and other foreign assets, and unreported foreign income. Also, if you are involved in cannabis, check out what our cannabis tax attorney can do for you. Additionally, if you are involved in cryptocurrency, check out what a bitcoin tax attorney can do for you.

Were You Disinherited From An Estate? Are You Receiving A Different Amount In An Inheritance Than What You Expected? Read This For Your Options.

Probate is the field of law that determines how an estate must be divided. Each state has its own laws and statutes requirements to determine if and how an estate must be probated. The probate court will supervise the process when a deceased person (a decedent) leaves assets to distribute, such as bank accounts, real estate, and financial investments with or without a will. The probate court provides the final ruling on the division and distribution of assets to beneficiaries.

In many cases, the decedent has established documentation, which contains instructions on how their assets should be distributed after death and designates in such documents who oversees implementing this process.  This involves collecting the deceased’s assets to pay any remaining liabilities on their estate and distributing the assets to beneficiaries. Where a decedent fails to establish such documents while alive, State law and the probate courts will dictate how the estate is administered and to whom assets get distributed to.

Probate With a Will 

A deceased person with a Will is known as a testator and he or she is deemed to have died “testate.” When a testator dies, the person designated as the executor under the Will is responsible for initiating the probate process. The probate process for a testate estate includes distributing the decedent’s assets according to the Will.

Probate Without a Will 

When a person dies without a Will, a person is to have died intestate. An intestate estate can also occur when a written Will is presented to the probate court and the probate court has been deemed the Will to be invalid. The probate process for an intestate estate includes distributing the decedent’s assets according to State law. State law does not allow for a blood-line heir to be disinherited.  That can only be done using a Will.

What Is The Probate Process?

A probate court proceeding begins with the appointment of an administrator or executor to oversee the estate of the deceased person. Such personal is typically called the “personal representative.”  The personal representative receives all legal claims against the estate and paying off the outstanding debts. Also, the personal representative is tasked with locating any legal heirs of the deceased, including surviving spouses, children, and parents. Then the probate court will assess what assets need to be distributed among the legal heirs and how to distribute them.

The probate process can take a long time to finalize and can become costly, therefore it is important to know whether a probate is required following the death of an individual. The more complex or contested the estate is the more time it will take to settle and distribute the assets. Furthermore, the proceedings of probate court are publicly recorded so avoiding probate would ensure that all settlements are done privately.

Note though that having a Will does not mean that probate is avoided, it just serves a roadmap for the probate court. There are several options involved with end of life planning to help avoid the probate process.

Disinheritance or receiving less than expected in a will or trust

Disinheritance is the act of intentionally excluding someone from inheriting your assets. Specific legal rules regarding disinheritance vary by state and spouses and minors may have protections. Disinheritance must be stated clearly and explicitly in a will or trust to avoid ambiguity and potential legal disputes, just excluding someone is not enough.

Contesting A Will Or Trust.

State law does not allow for a blood-line heir to be disinherited.  That can only be done using a Will or Trust. A person who contests a Will or Trust must be able to prove in probate court that fraud, diminished mental capacity, contractual obligations or other problems existed with the decedent’s estate plan that would invalidate the Will or Trust including any amendments.

People cannot contest decision to disinherit them or give them a certain amount simply because they believe it was unfair. There must be legal grounds for them to contest a Will or Trust, such as:

• They believe the decedent they are the heir to was not of sound mind when drafting the Will or Trust including any amendments.
• The Will or Trust including any amendments was not properly witnessed/executed.
• They suspect the decedent made the Will or Trust including any amendments under duress or undue influence.
• Factual error that resulted in the decedent leaving you out (for example, a disagreement over lifestyle choices. Such as, your parents disinherit you because they believed you were using illicit drugs or abusing alcohol and you can prove that you were not then you may be able to contest the Will or Trust).
• Elder abuse.
• Fraud.
• Forgery.
• Lack of due execution, which means the proper legal steps were not followed when the will was signed. Under California law, a will must be signed before two “disinterested witnesses” who are physically in the presence of each other and the testator.
• Mistake, such as the decedent mistook the document they were signing to be something else other than a will or trust.
• For a will to be revoked it usually needs to be destroyed, replaced or modified. For a trust to be revoked the process may be a little different than a will.

Not only must you have the legal grounds to contest a Will or Trust, you must also have standing. Persons with standing to contest a will or trust generally include, beneficiaries, heirs of the decedent or beneficiaries under the prior will or trust. The probate court is usually not flexible on the meaning of standing.

What to expect in contest proceedings.

If you have been kept out of a Will or Trust or you are to receive less than you expected and have the grounds to challenge it, a filing with the Probate Court making your claim must be made.  The probate court will schedule a hearing at which time you will be able to present any evidence you have supporting your claim. The probate court will then review the evidence and make a decision. If it can be proven the provisions of the document are invalid based on a legal ground, the probate court may order for the document to be voided. The decedent’s assets will either be distributed to their heirs in accordance with the state’s intestate succession statutes or to beneficiaries under a prior valid version of the document if the decedent has executed one. There is a deadline for contesting a Will once the probate process has begun and if you miss the deadline then you may not be able to contest a Will. Also, know whether a Will includes a “no-contest clause” which is especially important if you content that you are receiving less than you expected. A no-contest clause disinherits anyone who contests the Will and does not prevail in probate court in a Will contest.

What Should You Do?

Consider reaching out to a Trusts and Estates and/or Probate Attorney such as those at the Law Offices Of Jeffrey B. Kahn, P.C. We are always thinking of ways that our clients can save on taxes, trusts and estates planning, and probate matters. The tax attorneys at the Law Offices Of Jeffrey B. Kahn, P.C. located in Orange County (Irvine), Los Angeles and elsewhere in California are highly skilled in handling tax and probate matters and can effectively represent at all levels with the IRS and State Tax Agencies including criminal tax investigations and attempted prosecutions, undisclosed foreign bank accounts and other foreign assets, and unreported foreign income. Also, if you are involved in cannabis, check out what our cannabis tax attorney can do for you. Additionally, if you are involved in cryptocurrency, check out what a bitcoin tax attorney can do for you.

A taxpayer who dies with unfiled income tax returns and/or outstanding tax liabilities to the IRS or any State tax agency complicates the administration of the decedent’s estate or trust.  That is because the estate or trust will now be accountable to creditors, including the IRS and State tax agencies given that the decedent’s rights, liabilities, assets and interests transfer to their estate when they pass away. Because the resolution of these tax issues will require the appointment of a personal representative, it is necessary to first open a probate administration.

What is Probate?

Probate is the field of law that determines how an estate must be divided. Each state has its own laws and statutes requirements to determine if and how an estate must be probated. The probate court will supervise the process when a deceased person (a decedent) leaves assets to distribute, such as bank accounts, real estate, and financial investments with or without a will. The probate court provides the final ruling on the division and distribution of assets to beneficiaries.

In many cases, the decedent has established documentation, which contains instructions on how their assets should be distributed after death and designates in such documents who oversees implementing this process.  This involves collecting the deceased’s assets to pay any remaining liabilities on their estate and distributing the assets to beneficiaries. Where a decedent fails to establish such documents while alive, State law and the probate courts will dictate how the estate is administered and to whom assets get distributed to.

Probate With a Will 

A deceased person with a Will is known as a testator and he or she is deemed to have died “testate.” When a testator dies, the person designated as the executor under the Will is responsible for initiating the probate process. The probate process for a testate estate includes distributing the decedent’s assets according to the Will.

Probate Without a Will 

When a person dies without a Will, a person is to have died intestate. An intestate estate can also occur when a written Will is presented to the probate court and the probate court has been deemed the Will to be invalid. The probate process for an intestate estate includes distributing the decedent’s assets according to State law.

What Is The Probate Process?

A probate court proceeding begins with the appointment of an administrator or executor to oversee the estate of the deceased person. Such personal is typically called the “personal representative.”  The personal representative receives all legal claims against the estate and paying off the outstanding debts. Also, the personal representative is tasked with locating any legal heirs of the deceased, including surviving spouses, children, and parents. Then the probate court will assess what assets need to be distributed among the legal heirs and how to distribute them.

Where a personal representative knows that there are outstanding tax liabilities, the personal representative must provide Notice Of Administration to the IRS and applicable State tax agencies which provide instructions for such tax creditor to file a Proof Of a Claim with the probate court.  Where the amounts claimed as outstanding by the tax agencies are incorrect and overstated, the personal representative has the opportunity to dispute such claim which will eventually be heard by the probate court.  Such errors usually occur where the tax agencies did not properly post payments, has yet to process late-filed tax returns or amended tax returns, or the liabilities are based on returns created by the tax agencies and not based on returns filed by the decedent.  It is in the best interest of the personal representative to make sure these tax liabilities are accurate even if it means having the outstanding tax returns prepared or amended income tax returns filed as the failure to cover unpaid taxes from the deceased’s estate is considered to be a breach of fiduciary duty which can impose personal liability on the personal representative.

How Are Outstanding Tax Liabilities Paid?

The collectability of a decedent’s outstanding tax liabilities is typically limited to the value in their estate. Though, there are also situations where a beneficiary may incur tax liabilities for assets he or she receives from the estate such as inheriting real estate owned by the decedent if the personal representative transfers legal title to a beneficiary with unpaid property taxes.

Usually, beneficiaries do not pay income taxes on assets they inherit. There are exceptions regarding retirement accounts, proceeds from life insurance and savings bond interest. Inheritance from an individual retirement account (IRA), 401(k) or 403(b) is taxable if the money was tax deductible at the time the decedent contributed. If there are non-deductible contributions in the account, a portion of the account may be non-taxable. However, a surviving spouse who inherits money from certain retirement accounts of the decedent may roll over the money into their retirement accounts to defer taxes.

Beneficiaries who inherit proceeds from Roth IRAs should not pay taxes on the withdrawals because the contributions made by the decedent were not tax deductible. Furthermore, beneficiaries may not be required to pay taxes on the proceeds that the contributions generate so long as the account is five years old or older.

For life insurance contributions, beneficiaries do not usually pay taxes on the proceeds except on that portion of the proceeds that includes interest. Beneficiaries may also pay taxes if the policy was transferred to them for cash or other valuable consideration. Beneficiaries who inherit savings bonds may pay taxes if the bonds mature and if the beneficiaries redeem the bonds after the original owner deferred the tax. Also, some States have what is called an “inheritance tax” where a beneficiary who inherits from an estate has to pay the State tax on the value that he or she receives. It is the law of the State where the beneficiary resides and not the law where the decedent was domiciled that dictates applicability.

The IRS and any State tax agency can only enforce its claim for unpaid taxes through the decedent’s estate and if the decedent dies without assets or if there are insufficient funds from the estate, those taxes may go unpaid. The IRS cannot transfer the tax liability to another person, except to a surviving spouse when such spouse filed a joint tax return with the decedent, the decedent owed back taxes on a return involving a property they co-owned with the surviving spouse that they filed as married filed separately, or the couple lives in a community property state.

Spouses who believe the IRS or State tax agency is wrongly holding them responsible for their deceased partner’s taxes can apply for innocent spousal relief from the IRS or State tax agency. Innocent spouse relief can protect spouses from paying additional taxes, interest and penalties if the deceased spouse failed to report their income, misreported their income, claimed tax deductions and credits incorrectly, or omitted items on a tax return. Also, a surviving spouse can file a joint tax return for the last year the deceased was alive. Spouses can file as a qualifying widow or widower for two tax years following their spouse’s death if they have a qualifying dependent, which allows surviving spouses to claim standard deductions as a married couple.

How To Determine The Amount Of Back Taxes A Decedent Owes?

For a beneficiary, executor, or administrator to determine the amount of back taxes a decedent potentially owes one must contact the IRS and inform them that you are authorized to receive the decedent’s tax records. This is done by filing a Form 56, Notice Concerning A Fiduciary Relationship. Additionally, a variety of transcripts can be secured from IRS that provides information about the decedent’s previous tax returns and how much they owe.

What Should You Do?

At the Law Offices Of Jeffrey B. Kahn, P.C. we are always thinking of ways that our clients can save on taxes, trusts and estates planning, and probate matters. When there are outstanding tax liabilities or outstanding tax returns, the expertise of a skilled lawyer at the  Law Offices Of Jeffrey B. Kahn, P.C. is needed to help protect the interests of the parties involved. The tax attorneys at the Law Offices Of Jeffrey B. Kahn, P.C. located in Orange County (Irvine), Los Angeles and elsewhere in California are highly skilled in handling tax and probate matters and can effectively represent at all levels with the IRS and State Tax Agencies including criminal tax investigations and attempted prosecutions, undisclosed foreign bank accounts and other foreign assets, and unreported foreign income. Also, if you are involved in cannabis, check out what our cannabis tax attorney can do for you. Additionally, if you are involved in cryptocurrency, check out what a bitcoin tax attorney can do for you.