F. Create a detailed tax planning proposal explaining how the client’s family ca
ID: 2461878 • Letter: F
Question
F. Create a detailed tax planning proposal explaining how the client’s family can experience tax savings should the client pass away. Cite relevant governing rules and regulations. G. Illustrate a strategic plan that addresses the need for a will in handling the estate. Detail what happens to the business, land, and investments consistent with tax codes and regulations. Consider extending the plan to address the client’s estate tax, trust, and charitable contributions while minimizing estate tax. H. Recommend estate planning strategies consistent with tax codes and regulations for the purpose of reducing the taxable estate. Be sure to include gifting property to heirs in your response. I. Illustrate the best course of action if the client decides to leave the business in three years. Provide some advice to him should he decide to gift the business to his daughter or transfer the assets or common stock to her, depending on the business entity you have selected. J. Illustrate the best course of action if the client wishes to sell the business. Consider the tax consequences with regard to capital gains and losses, ordinary income issues, and selling an existing operating business.
Explanation / Answer
Answer
Answer H.
Recommend estate planning strategies consistent with tax codes and regulations for the purpose of reducing the taxable estate. Be sure to include gifting property to heirs in your response.
Following are estate planning strategies consistent with tax codes and regulations for the purpose of reducing the taxable estate.
1. Draw up a Will: First strategy is to draw up a will. Without a will, beneficiaries will have to incur a lot of costs to get estate in their name through court.
2. Check Beneficiaries: Not all assets are disbursed through a will. Some accounts, such as retirement funds and life insurance policies, let owners name beneficiaries for that particular asset. Without a named beneficiary, an account will need to go to probate court, where a judge will decide who gets the money. So it is a good idea to review beneficiary information after every major life change including the birth of children, marriage or divorce.
3. Set up a Trust: If anyone has a sizeable estate or is worried that his heirs won’t be wise with his money, he can set up a trust and appoint a trustee to distribute his wealth. Trusts can be set up in several ways, but irrevocable or permanent trusts may offer the most tax benefits. When money is put into an irrevocable trust, the assets no longer belong to owner. They belong to the trust itself. As a result, the money cannot be subject to estate taxes. While a trustee ultimately controls the money, Owner can create stipulations on its use, and money can be distributed from a trust even while owner is alive. A trust does have to pay taxes on its income from dividends, interest and other sources, and the tax rates for trusts can be higher for individuals. So it is advisable to pay expenses from a trust, whenever possible.
4. Convert Traditional Retirement Accounts to Roth Accounts: Traditional IRAs and 401(k)s are subject to income tax if passed to a beneficiary who is not a spouse. Currently, those taxes can be spread over the life of the beneficiary. Owner can avoid leaving his beneficiaries with that tax by gradually converting traditional accounts to Roth accounts that have tax-free distributions. Owner should make a series of conversions over several years. Since the amount converted will be taxable on owner’s income taxes so the objective is to limit each year’s conversion so it doesn’t push owner into a higher tax bracket.
5. Gift Your Money while you’re Alive: To ensure money stays in the family, It is advisable to give it to heirs while owner is alive. The IRS allows individuals to give up to $14,000 per person per year in gifts. If owner worried about his estate being taxable, gifts can bring its value down. The money is also tax-free for recipients.
6. Set up a donor-advised fund : There is also way to reduce estate value through charitable donations. It is advisable to set up a donor-advised fund. It will give owner an immediate tax deduction for money deposited in the fund, and then let owner make charitable grants over time. If owner names a child or a grandchild as a successor for the fund, it would keep the family involved in philanthropy.
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.