Tax Compliance and Planning

Income Tax

Did you know that when a single person passes away, his or her executor generally must file two income tax returns for the year of death? The first return relates to the period during the calendar year while the individual was still alive. The second return relates to the remainder of the year and is filed on behalf of the individual's estate. If a married person who was filing jointly with his or her spouse passes away during the year, the surviving spouse still may file a joint return even though the other spouse died during the calendar year.

Zell Law attorneys often assist our clients in preparing the final individual tax return for the decedent and the estate's income tax return and in evaluating and selecting the myriad post-mortem income tax planning opportunities and elections that an executor must make to minimize income and estate taxes. Many of the choices are linked to decisions on the estate tax return that must be filed within nine months following the date of death.

Estate Tax

If an estate is large enough, the executor generally must file an estate tax return on Form 706 within nine months of the date of death. Estate tax planning does not end with death, however, and there are many decisions the executor must make regarding how to report items on an estate tax return, whether and the extent to which taxes may be deferred beyond the due date of the tax return, and other items that will require the assistance of a competent estate tax attorney to minimize taxes and protect assets. Zell Law attorneys frequently advise executors and trustees on estate tax matters and assist in the preparation of estate tax returns, where necessary and appropriate.

Gift Taxes

Most people don't realize that gift tax may be due on certain transfers you make during your life. And, even if gift tax is not due, it may be required or wise to file a gift tax return, depending upon the transaction that resulted in a transfer of assets or wealth from a donor to a donee. Zell Law attorneys often assist clients in complying with the gift tax rules, by preparing gift tax returns and structuring ways in which to minimize gift taxes and maximize the use of the lifetime gift tax exemption and the annual exclusion from gift tax we all enjoy.

Liability for Taxes

The Internal Revenue Code imposes on the donor the primary obligation to pay gift tax and on the executor the primary obligation to pay estate tax. Under most circumstances the person responsible for paying the tax pays the tax when it's due. Sometimes it is difficult to come up with the cash flow to pay the tax. For example, if gift tax is not paid when due, the government has the option of collecting the tax from gift recipients. The Internal Revenue Code also may impose personal liability on the executor, and in some cases, on the transferee of the assets, for estate tax not paid when due.

In those cases, Zell Law attorneys use legal and creative techniques to minimize exposure to personal liability while taking advantage of various elections and opportunities to defer tax without undue burden or cost.

Disclaimers

If a donee of property indicates within a reasonable time that he or she does not accept a gift, and, in fact, he or she has done nothing which indicates acceptance, the gift has not been made and a qualified disclaimer may have been made. There are several reasons why beneficiaries of a decedent's will or revocable trust might want to alter the dispositive provisions of that document and disclaim the right to receive property that otherwise would be given to them. It may be that the economic positions of beneficiaries have changed since the document was drafted, or there may simply be a drafting error that needs to be corrected. Whatever the reason (and there are many), if the beneficiary who wants to redirect a testamentary gift simply accepts the gift and then gives it to the person she wants to benefit, the original beneficiary may have made a taxable gift. To avoid this result, a disclaimer can prove invaluable.

Disclaimer planning is another aspect of gift tax and post-mortem estate planning that is an essential weapon in the arsenal of estate planning tools offered by Zell Law attorneys.

Generation Skipping Transfer Tax

One of the more complicated and confusing areas of estate tax planning and compliance relates to the generation skipping transfer tax, or GSTT, for short. The GSTT actually is not an estate or gift tax but is an entirely separate tax. In broad terms, GSTT was designed to tax trust property and other transfers when an interest in, or power over, property shifts from one generation younger than the grantor's generation to a still younger generation (i.e., transfers to a person that is two or more generations younger than the transferor). This tax not only pertains to transfers within families but also to transfers outside of the family relationship. Each person is entitled to a lifetime exemption from the GSTT (that currently tracks the amount used for the estate tax applicable exclusion amount). In addition, each person has an annual exclusion from the GSTT that is the same amount as the gift tax annual exclusion amount.

Needless to say, there are completely separate rules pertaining to the GSTT that are extremely complex and should be considered each time a transfer of property is made to an individual two or more generations younger than the donor. Zell Law attorneys have extensive experience in advising clients on the methods of minimizing exposure to the GSTT.