Cash to avoid estate tax

[Joylush]

Thanks for the clarification and ideas.

[RockyMtn]

And why do you believe that cash wouldn't be considered part of the estate?

https://www.fidelity.com/estate-plan...trategies/cash

[Joylush]

Quote:

Originally Posted by RockyMtn And why do you believe that cash wouldn't be considered part of the estate? https://www.fidelity.com/estate-plan...trategies/cash

Estate basis consistency and reporting: What practitioners need to know - Journal of Accountancy

Probably wishful thinking but reading this implies that cash is exempt from reporting. Being dead the heirs would be responsible for reporting. Leaving cash seems to give them more options.

[RobbieB]

Options to defraud the government?

Unless it's stuffing the mattress the government knows about it anyway.

And even then the lawful thing is to report it.

[ERD50]

Quote:

Originally Posted by RockyMtn And why do you believe that cash wouldn't be considered part of the estate? ...

Yes, the OP isn't adding up for me. Did you mean something else? Did you leave out some information?

Estate tax is on the entire estate. House, cars, collectibles, investments, cash - the form doesn't matter. Probably the value of outstanding loans as well.

Please clarify.

Also, Federal Estate tax doesn't kick in until $5,490,000, and currently increases with inflation. If I hit that level, I'm pretty sure I'd just start giving it away to friends/family/charity. I'm already plenty comfy well below that, if that amount isn't enough cushion for me, I guess no amount would be.

-ERD50

[sheehs1]

The Unified Tax Credit Amount, the amount of the estate before federal estate taxes are owed is 5.49 million for 2017. That's a large chunk before anyone has to worry about it.

However, state level estate taxes are are different for each state.

[ERD50]

Quote:

Originally Posted by Joylush Estate basis consistency and reporting: What practitioners need to know - Journal of Accountancy Probably wishful thinking but reading this implies that cash is exempt from reporting. Being dead the heirs would be responsible for reporting. Leaving cash seems to give them more options.

No. That would be fraud.

I think that article is referring to things (including cash) of minimal value (<$3,000).

-ERD50

[2017ish]

Quote:

Originally Posted by sheehs1 The Unified Tax Credit Amount, the amount of the estate before federal estate taxes are owed is 5.49 million for 2017. ...

And if married couple, you have portability, so double that before worrying about how to best structure estate/life/trusts to legally avoid the tax.

[Joylush]

Quote:

Originally Posted by ERD50 Yes, the OP isn't adding up for me. Did you mean something else? Did you leave out some information? Estate tax is on the entire estate. House, cars, collectibles, investments, cash - the form doesn't matter. Probably the value of outstanding loans as well. Please clarify. Also, Federal Estate tax doesn't kick in until $5,490,000, and currently increases with inflation. If I hit that level, I'm pretty sure I'd just start giving it away to friends/family/charity. I'm already plenty comfy well below that, if that amount isn't enough cushion for me, I guess no amount would be. -ERD50

I guess that would depend on what age you were. I'm not keen on paying an extra 40% on my life's earnings no matter what the amount. It seems punitive. Then again, you're dead.

[Koolau]

I don't know the legal status of a two-party checking account when it comes to total estate, but that might work to pass some money (legally). Never really thought about it before. With current limits, I'm not too worried about it either. YMMV

[bingybear]

The laws may change and you may find other issues.
but why not gift it early or move it to an irrevocable trust ... thus out of you estate.
If you really want to move it out of the estate, create a life insurance trust and use that as a means to move assets.

[ERD50]

Quote:

Originally Posted by Joylush I guess that would depend on what age you were. I'm not keen on paying an extra 40% on my life's earnings no matter what the amount. It seems punitive. Then again, you're dead.

I understand, it was more just to verify you knew the limits had been raised (they had been ~ $600,000 a while back). Even a $5M limit can be a problem if that's tied up in a business. Someone may want to hand that business down in the family, but a $20M business may really only provide enough profit for a few family members, but a 40% hit on ~ $15M could be unsustainable.

But I don't think a cash account is going to do it for you. Study up and hire a pro if you think it would help, but I think most of the 'fixes' do more for the lawyers and accountants and insurance/annuity sales people than it will do for you and your heirs.

You can give $14,000 per person annually to any individual with no tax reporting or taxes due, and if you have a spouse, you can each give $14,000. You could distribute $200,000 pretty quickly that way.

-ERD50

[rodi]

There are legal ways to minimize estate tax...

Keeping your assets in cash is either going to still be taxed, or cause your heirs to break the law by hiding assets. Do you really want to encourage your heirs to break the law and risk penalties, fines, and possible jail time? Presumably they're already inheriting >$5M tax free...

See an estate attorney on ways to minimize the taxes (through trusts, charitible trusts, etc.)

[CaliKid]

Step up your gifting programs. $14k a year, per person, can add up quickly.

[pb4uski]

Quote:

Originally Posted by Koolau I don't know the legal status of a two-party checking account when it comes to total estate, but that might work to pass some money (legally). Never really thought about it before. With current limits, I'm not too worried about it either. YMMV

If there is more than one name on a bank account, technically if one dies then the survivors own the account. That can play in other ways too though, if any one of the owners is in litigation, the entire account can be at risk. pick your poison... carefully.

[bingybear]

Quote:

Originally Posted by pb4uski If there is more than one name on a bank account, technically if one dies then the survivors own the account. That can play in other ways too though, if any one of the owners is in litigation, the entire account can be at risk. pick your poison... carefully.

when you add someone as jwros, you have made a gift which may require a gift tax return depending upon value.

[SecondCor521]

Quote:

Originally Posted by pb4uski If there is more than one name on a bank account, technically if one dies then the survivors own the account. That can play in other ways too though, if any one of the owners is in litigation, the entire account can be at risk. pick your poison... carefully.

I think it also depends on if one lives in a community property state or not. Idaho is a community property state, and when my Mom passed away last year, half of their joint checking account was included in her estate valuation.

I have no idea what happens if the account owners live in different states and one is community property and the other isn't.

Also, "cash on hand" was asked about and dutifully included in her estate as well, so to the OP, any cash in the mattress does not escape being included for estate tax purposes (unless you commit tax fraud, never advisable).

@2017ish, the law does allow portability, but everyone should know that in order to utilize double the estate tax exemption, you do need to elect it by filing a timely estate tax return *and* electing the portability option (google DSUEA if your interested) - it is not automatic. Also getting remarried affects things...

Finally, if one has grandchildren with 529 plans, one can contribute up to 5 years worth of gifting all at once which moves it out of the estate once the contribution has been made. Depending on the number of grandkids, that could be a lot of money.

[Gumby]

What if you have a whole life insurance policy and your heirs are the beneficiaries? Is the death benefit part of the estate? I don't know the answer, but I'll bet someone here does.

[ERD50]

Quote:

Originally Posted by bingybear when you add someone as jwros, you have made a gift which may require a gift tax return depending upon value.

Ahhh, I figured there had to be a catch. That just seemed like too easy of a way to skirt the Estate Tax issue. Plus, I never heard of it, but lawyers, and annuity/insurance sale people couldn't make much $ from a simple plan like that.


-ERD50

[ERD50]

Quote:

Originally Posted by Gumby What if you have a whole life insurance policy and your heirs are the beneficiaries? Is the death benefit part of the estate? I don't know the answer, but I'll bet someone here does.

If structured correctly, it can be done.

From what I understand, the normal way to do this is the owner of the policy (and beneficiaries, of course) should all be outside of the estate. Then the estate 'gifts' the beneficiaries, which can then use the money to pay the premiums. If the people inside the estate pay the premiums directly, it doesn't pass muster.

And the beneficiaries can't be 'forced' to pay the premiums, or it isn't a 'gift'.

But those pesky premiums! So if you sort that out, it still amounts to a bet with the insurance company. After all (and the insurance people never mention this), the 'gifting' alone gets the money out of the estate. So it boils down to whether an ins policy is a good investment or not, and most people would say "No".

Sometimes the policy is used to provide liquidity at death, so money is available to pay the estate tax when the estate itself isn't easily liquidated (real estate, a business, etc). But there might be better ways to gain liquidity.

-ERD50