Advanced Estate Planning

What Is Unified Credit?

We just got through tax season.  That spells good news for accountants, who have been keeping long hours and perspiring through the mound of tax returns they do for their clients.  Undoubtedly, they will take a little time to regroup and, you know, get some sleep.  The end of tax season also means good news for the rest of us because it means that the cloud of “having to do taxes” has been removed, at least for another year.

So now that we have the tax season out of the way for the year, and we are through looking back to 2018 (thinking about how the tax law changes helped or hurt us), we now have a clear head to think about what we can do, tax-wise, in 2019.

Accordingly, this article will talk about a tax credit concept that goes by many names, but is typically known as the “unified credit.”  We will delve into this concept in some detail to see if it will impact you for 2019.  In short, the unified credit is a helpful way to plan your estate when thinking about giving gifts to family members during your lifetime.

If, after reading this blog, you have more questions about the unified credit, or want to get the process started to give a gift to family as a part of your estate plan, we welcome you to call us at Doane & Doane.  Allow our expert attorneys to be your South Florida legal guide to unified credit, and all other types of tax-focused estate planning strategies.

As your South Florida legal guide, our top estate planning attorneys understand just what is needed to ensure that your wishes are followed, and that you get the most money to your family with the least amount of taxes needing to be paid.  Call us for a free consultation today at 561-656-0200.

Now, let us get into the world of estate taxes, the unified credit, and estate planning in general.  To understand the unified tax, you need to know a little bit about estate taxes.

Why Do We Have Estate Taxes?

The estate tax, which is the tax on a person’s estate that is valued over about $11 million, has been a bit of a political football for quite some time.  Here is a quick look at the reason for the tax, and the controversy surrounding it.

The reason for the tax is essentially based on the notion that very wealthy individuals use ways in which to lower their tax burden during their lives.  That, in turn, typically results in a lower effective tax rate for that wealthy person compared to those in the middle class.  Accordingly, the estate tax allows for the wealthy pay their fair share of taxes, even if it is upon their death.

The response to that rationale, however, is that the estate tax acts as a “double tax” on income.  That is because the income is taxed once during a person’s lifetime, and then taxed again upon their death.

It is important to remember, however, that the estate tax only applies to estates that are worth more than about $11 million dollars.  That is about one-tenth of one percent (.1%) of Americans each year.  In fact, the recent tax law changes actually increased the estate tax threshold from $5 million to $11 million.

How Do Estate Taxes Work?

As noted, for the past eight years, the estate tax exemption amount was $5 million.  The recent change in the tax law brought that exemption up to $11 million.  What the exemption means is that if your estate is worth less than $11 million, which is where more than 99% of the country is tax-wise, then you have no estate tax liability.  If you pass away with less than $11 million in your estate, you do not even have to worry about estate taxes.

However, if your estate is worth more than $11 million when you pass away, then any money over $11 million in your estate will be taxed at 40%.  To get an idea of how few people need to worry about the estate tax, let’s look at some numbers:

In 2017, before the change in the tax law, about 6,500 estates paid estate taxes.  By contrast, in 2018, after the tax law change, an estimated 1,890 estates paid estate taxes throughout the entire country.

What is Unified Credit?

Having the estate tax fresh in mind, now let’s move to the unified credit.  A unified tax credit is the credit that is given to each person, allowing him or her to gift a certain amount of money each year without having to pay gift, estate, or generation-skipping transfer taxes.  Specifically, the unified credit allows you to give up to $15,000 to anyone each year without having to file a gift tax return form with the IRS.

Accordingly, the unified credit can be used as a particularly effective estate planning tool in order to ensure that money goes to your family while you are still alive, tax free.

The unified credit is considered “unified” because it integrates both the gift and estate taxes into one system.  It is a tax credit, so its impact is to decrease the overall tax bill of the individual or a person’s estate.

Let Doane & Doane Attorneys Be Your South Florida Legal Guide

At Doane & Doane we help our clients strategize their estate plan to ensure that as much of their hard-earned assets get passed to their loved ones with as little tax liability as possible.  Of course, you want to make sure that your family gets as much benefit from your lifetime of income as possible.

Our tax attorneys are the South Florida legal guides that will ensure that you have a solid estate plan.  We pride ourselves on personalized legal and tax counsel at a competitive cost.  So, consider giving us a call and setting up a free consultation at Doane & Doane.  With our decades of experience, and the many resources we have at our disposal, we will be sure that you have the estate planning results you need.  Call today at 561-656-0200.