The Law Offices of Robert J. Delaney- Wills/Trusts

 

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A.                 WILLS

Wills are the document device we use to legally arrange for the transfer of the property we have left

when we die.  It is essential that every adult have a Will. Without a Will the State decides per Statute what happens

to your property after death. Sometimes the Statutory distribution fits your desires. Usually it doesn’t.

 

For a chart to see who your heirs are, click here.

 

B.                ESTATES

After your death, unless you have a Trust, or you have a surviving spouse, usually your heirs will then go thru the “Probate Process” i.e. having executor appointed, (proving) the Will is the deceased’s Last Will, Inventory and Appraisal, paying creditors, doing death Inheritance Tax return, and getting Tax clearance, preparing final accounting and getting court approval, distributing the estate, and finally getting  approval of distribution made and obtaining discharge of the executor.

 

C.                TRUSTS

Trusts are separate legal entity and when we create them, they don’t die when you do, but continue on until the internal operating instructions cause them to terminate.  They are a very valuable tool for:

a.                  Death transfer of property

b.                  Avoiding probate

c.                  Minimizing Federal estate taxes for a husband or wife

d.                  Avoiding publicity

e.                  Moving from State to State without estate planning complications

     D.   Inheritance, Estate or Death Taxes.

    Like there is a Federal and State income tax, there is a federal and a state death tax.

a)      Federal Estate tax.  No tax unless total net estate exceeds 1.5 million.  Then tax rates are:

2006 Federal Estate Taxes

Taxable Estate

Tentative Tax

Year

Estate Tax Credit

Tax-Sheltered Estate

Col. 1    

From      To     

Tax on                  Rate on

Col. 1                   Excess

2005

 

2006-08

 

2009

 

2010

 

2011

$555,800                 $1,500,000

 

$780,800                 $2,500,000

 

$1,455.800               $3,500,000

 

One Year repeal of Estate, GST tax

                         

$345,800                  $1,000,000

$1,500,000$2,000,000

2,000,000  Infinity

 

$555,800              45%

780,800                47%

      The top estate tax rate declines to 46% in 2006 on amounts over $2,000,000 and 45% in 2007 on amounts

       over #1,500,000

2006 Indiana State Inheritance Taxes

b)      Indiana- Inheritance tax.  Indiana looks at who is getting the Inheritance, give an exemption,

 and then taxes the balance if any.

Exemptions are:

                                                SCHEDULE OF BENEFICIARIES, EXEMPTIONS AND INHERITANCE TAX RATES

                                                                                                (As in effect July 1, 2000)

 

CLASSES OF BENEFICARIES

 

CLASS A, IC 6-4.1-1-3(a)

CLASS B, IC 6-4.1-1-3(b)

CLASS C, IC 6-4.1-1-3(c)

 

surviving spouse,

IC 6-4.1-3-7

lineal ancestor or lineal descendact of the transferer

(1) brother or sister of the transferor;

(2) descendant of a brother or sister of the transferor; or

(3)spouse, widow, or widower of a child of the transferor

a transferee, except a surviving spouse, who is neither a Class A nor Class B transferee.

EXEMPTIONS

all, IC 6-4-3-7

$100,000 IC 6-4.1-3-10

$500 IC 6-4.3-11

$100 IC 6-4.1-3-12

TAX RATES

 

NET TAXABLE VALUE OF PROPERTY INTERESTS TRANSFERED

INHERITANCE TAX,

IC 6-4.1-5-1(b)

$ 25,000 or less

 

 

over $ 25,000 but not over $50,000

 

 

over $ 50,000 but not over $200,000

 

 

over $200,000 but not over $300,000

 

 

over $300,000 but not over $500,000

 

1% of net taxable value

 

$ 250, plus 2% of net taxable value over $25,000

 

$750, plus 3% of net taxable value over $50,000

 

$ 5,250, plus 4% of net taxable value over $200,000

 

$9,250, plus 5% of net taxable value over $300,000

CLASS A, IC 6-4.1-1-3(a)

NET TAXABLE VALUE OF PROPERTY INTERESTS TRANSFERED

INHERITANCE TAX,

IC 6-4.1-5-1(b)

over $500,000 but not over $700,000

 

 

over $700,000 but not over $1,000,000

 

 

over $1,000,000 but not over $1,500,000

 

over $1,500,000

$19,250, plus 6% of net taxable value over $500,000

 

$31,250, plus 7% of net taxable value over $700,000

 

$52,250, plus 8% of net taxable value over $1,000,000

 

$92,250, plus 10% of net taxable value over $1,500,000

NET TAXABLE VALUE OF PROPERTY INTERESTS TRANSFERED

INHERITANCE TAX,

IC 6-4.1-5-1(c)

$100,000 or less

 

over $100,000 but not over $500,000

 

 

$500,000 but not over $1,000,000

 

 

over $1,000,000

7% of net taxable value

 

$7,000, plus 10% of net taxable value over $100,000

 

$47,000, plus 12% of net taxable value over $500,000

 

$107,000 plus 15% of net taxable value over $1,000,000

NET TAXABLE VALUE OF PROPERTY INTERESTS TRANSFERED

INHERITANCE TAX,

IC 6-4.1-5-1(d)

$100,000 or less

 

 

over $100,000 but not over $1,000,000

 

 

over $1,000,000

10% of net taxable value

 

$10,000, plus 15% of net taxable value over $100,000

 

$145,000, plus 20% of net taxable value over $1,000,000


 

 

Compiler’s Notes.  Latest edition of the Indiana Code supplement should be consulted for subsequent changes that may

affect the provisions identified in this table.  See IC 6-4.1 Do not relay on this table without checking for updates. The purpose

of this table is to give you a general idea of your death tax rates. This table may or may not have changed.

  Cross References.   Estate tax IC 6-4.1-11.

                                Computation, see IC 6-4.1-11.5.

                                Exemptions for specific transfers of property.

                                Annuity payments as described in 26 U.S.C. 2039(a), see IC 6-4.1-3-6.5.

                                Life insurance proceeds see IC 6-4.1-3-6.

                                Transfers for public, charitable, and religious uses, as described in 26 U.S.C. 2055(a), see IC 6-4.1-3-1.

                                Transfers to cemetery associations, see IC 6-4.1-3-1.5.

                                Transfers to surviving spouses, see IC 6-4.1-3-1-7.

                                Indiana generation-skipping transfer tax, see IC 6-4.1-11.5.

                                Computation, see IC 6-4.1-11.5-8.

                                Property transfers subject to tax, see IC 6-4.1-2-1.

    

     E.    ADDITIONAL INFORMATION

1.  For the Purpose of Inheritance

     a)  Paternity of a child age 20 born out of wedlock must be established by

 law in cause of action filed during father's lifetime.

     b)  Paternity of a child under age 20 born out of wedlock must be established by law in

 cause of action filed within 5 months of father's death.

2.      For the Purpose of Inheritance

   a)  A spouse living in adultery will not share in inheritance of a deceased spouse.

     b)  A spouse who has abandoned his or her spouse without just cause shall not share in

inheritance of a deceased spouse.

3.    One Cannot Disinherit a Spouse Except

    Through a Prenuptial Agreement.

a)      A spouse with children by the deceased shall take no less than 1/2 of the deceased's real

    and personal property.

b)      A spouse with no children by the deceased shall take no less than 1/3 of the deceased's real and

    personal property and a life estate in 1/3 of the real property.

 4.   Claims Against an Estate are Paid in this Order of Priority:

   a)  Costs and expenses of administration.

     b)  Reasonable funeral expenses.

     c)  Taxes allowances (25,000.00).

     d)  Taxes owed to U.S.

     e)  Reasonable and necessary medical expenses of last sickness.

     f)  Taxes owed to State of Indiana.

     g)  All other claims allowed.

      After the above are paid, the remainder is paid per the Will or per the Indiana

      Statute if no Will.

F.                 Gifting Techniques.

 Charitable Gift Techniques Compared

Technique  Income Tax Deduction Special Considerations
Outright Gift Of Cash or Long Term Capital Gain Property 100% deduction in year of gift, up to 50% of donor’s adjusted gross income (30% for long-term capital gain property). Five-year carryover for excess deductions. Largest deductions; long-term capital gains tax avoided if appreciated property is contributed.
Charitable Remainder Annuity Trust Present value of charity’s remainder interest (10%minimum) deductible In year of gift, based on age of income beneficiaries and unvarying dollar amount to be paid each year (see preceding tables). 5% probability tests limits maximum payouts to the applicable federal interest rate percentage used in calculating the deductions. Stable annuity income for life (5% minimum) for beneficiaries of donor’s choice; capital gains tax avoidance; possible tax-free income from trust; estate tax savings; trustee handles Investments; can last for life or term of years up to 20.
Charitable Remainder Unitrust Present value of charity’s remainder interest (10% minimum) deductible, based upon age of income beneficiaries, and percentage of value of trust assets to be paid annually. Higher payouts (not exceeding 50%) possible than annuity trust (above) because 5% probability test does not apply.  See preceding Same benefits as the annuity trust (above) except that payout is a percentage of the changing value of the trust assets (possible hedge against inflation). Also, additional contributions are permitted, and donor may elect to have trust pay the unitrust percentage or actual trust income, whichever is LESS. tables to figure deductions.
Charitable Gift Annuity Amount transferred to charity, less the present value of annuity retained for the life of the income beneficiaries. Deductions identical to those afforded by charitable remainder annuity trusts, but much lower amounts needed to fund gift. Higher deductions if payment deferred for several years. Payouts based on age or ages of income beneficiary(s). Maximum of two annuitants permitted. If funded with appreciated property; capital gain is reduced and spread over donor/annuitant’s life expectancy. Annuity income is partially tax free. Higher payouts for deferred payment gift annuities.
Pooled income Fund Trust Present value of remainder interest in amount transferred to charity operating the fund, based according to their share in the “pool” on the age of beneficiaries and fund’s highest payout rate for the last three years. Assumed rate during a fund’s first three years is one percentage point less than the highest average annual interest rate (AFR) for the three years preceding the year of the gift. All income from the fund is distributed to participants (analogous to a mutual fund). All income to participants is taxed as ordinary income (tax-exempt investments prohibited). Smaller gifts possible; repeat gifts permitted; avoids capital gains taxes.
Gift of Home Or Farm With Reserved Life Estate Present value of charity’s remainder interest in land and structures less depreciation on structures during donor/life tenant’s remaining life expectancy. “Home” includes vacation property, condos, etc. “Farm” Includes ranchland, and just a few acres may be contributed. Donors who intend to bequeath farms or homes to charity can accomplish same result with this technique, but receive a current income tax deduction, and continue to use farm or home for life. Life estate can be reserved for one or more lives. Can be arranged by will (possible estate tax savings).
Charitable Lead Trust Present value of charity’s income interest (if donor is owner of trust under grantor trust rules, generally via reversion to grantor). Donor is taxes on trust income. Lead trusts are usually created for a term of years, with heirs as remainder beneficiaries (generally, no income tax deductions but federal transfer tax savings). Trust is not tax exempt.

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