HOW MUCH CAN AN OKLAHOMA RESIDENT PASS FREE OF THE FEDERAL ESTATE TAX?
By Larry Parman OKLAHOMA ESTATE PLANNING ATTORNEY
The federal estate tax parameters are applicable to citizens of all 50 states. You may have heard that people in different states have different levels of tax responsibility, so it is understandable that some individuals are looking for clarity. Though the vast majority of states do not collect state level estate taxes, there are states that have their own estate taxes. Clearly, people who live in these states have an added level of concern. In many
cases
the
amount
that
is
excluded on the state level is lower than the federal estate tax exclusion. The good news for people in Oklahoma is that we no longer have a state level estate tax. We had an estate tax up until 2009, but it is no longer in place. However, you are exposed to the federal estate tax as an Oklahoma citizen if the amount of your assets exceeds the amount of the federal estate tax exclusion.
HOW MUCH IS THE FEDERAL EXCLUSION? At the federal level, a $5 million exclusion was put into place for the 2011 calendar year. Under laws that existed at that time the same exclusion would hold sway in 2012, but there would be an adjustment for inflation. This adjustment was applied, and in 2012 there was a $5.12 million exclusion. At the end of 2012 there was uncertainty with regard to the estate tax exclusion. The parameters described above were in place because of a tax relief act that was passed at the end of 2010. That measure was scheduled to expire at the end of
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2012. After the expiration the estate tax exclusion would go down to $1 million. This is assuming that no legislative measures were passed that would change the lay of the land. But there was a piece of legislation passed at the very end of 2012 that we are now calling the American Taxpayer Relief Act of 2012. It allows the estate tax exclusion to stay along the same path that started in 2011 with a $5 million figure adjusted annually for inflation. This is the back story. In 2014 the estate tax exclusion is $5.34 million, and this figure is in place after another inflation adjustment was applied at the beginning of this year. There is no scheduled expiration for these currently existing parameters. There is a provision in place that allows for ongoing inflation adjustments on an annual basis.
IS THIS ARRANGEMENT PERMANENT? As stated above there is no expiration or sunset date for the parameters that are in place at the present time. This is a deviation from what we traditionally see the federal government do. For this reason some people are calling the current estate tax parameters permanent. However, this is really not an accurate description. Viewing the current estate tax parameters as truly permanent can actually be quite dangerous because people may gain a false sense of security.
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As we pointed out in the previous section, legislative changes can alter existing laws. The estate tax parameters are definitely subject to Estate planning is an
change. In fact, a significant change has already
ongoing process. It is
been proposed by the White House. The White
not a "one and done"
House budget proposal for 2014 includes an
kind of deal. Life does
increase in the federal estate tax that would be
not stand still, and it is
implemented in 2018.
likely that your existing estate plan will need ongoing adjustments over the years.
This proposal would set the clock back to 2009. During that year the federal estate tax exclusion was $3.5 million, and the top rate of the tax was 45%. We have a 40% maximum rate right now, and as we have already made clear the amount of the federal estate tax exclusion in 2014 is $5.34
million. The proposal outlined above may or may not come to fruition. It is certainly something to keep a close eye on if you are in possession of wealth that hovers somewhere in the vicinity of $3 million to $6 million or more. Whether this proposal is actually adopted or not, you should certainly be aware of the fact that tax laws can and do change. Estate planning is an ongoing process. It is not a "one and done" kind of deal. Life does not stand still, and it is likely that your existing estate plan will need ongoing adjustments over the years. Laws can change, and your own financial situation can improve dramatically. Your estate plan may have been constructed when you were not exposed to the estate tax. If you do become exposed you must take immediate action to revise
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your plan. Every day that you spend with an obsolete plan is a day that you are risking perhaps millions of dollars unnecessarily.
UNLIMITED MARITAL DEDUCTION When you are considering how you want to utilize your $5.34 million estate tax exclusion you should understand that you don't need to use any of it to give your spouse an inheritance. Under the tax code you may bequeath any amount of property to your spouse free of the estate tax because of the unlimited marital deduction. You do have to be married to an American citizen to take advantage of this deduction.
CONCLUSION If your assets exceed $5.34 million in value your financial legacy is at risk. Fortunately you do not have to resign yourself to a 40% levy on everything that exceeds this amount. There are smart legal strategies that you may employ to minimize your exposure. You can find out about them by consulting with a licensed estate planning attorney.
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REFERENCES Internal Revenue Service http://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/Estate-andGift-Taxes Forbes http://www.forbes.com/sites/deborahljacobs/2013/01/02/after-the-fiscal-cliffdeal-estate-and-gift-tax-explained/
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About the Author Larry Parman After helping his own family deal with a lengthy probate and a battle with the IRS following his father’s death in a farm accident, Larry made a decision to help families create effective estate plans designed to reduce taxes, and minimize legal interference with the transfer of assets to one’s heirs, and protect his clients’ assets from predators and creditors. Following a dozen years in the investment banking and financial services business, in the mid-1980s Mr. Parman formed a law firm that gives families the peace of mind that comes from having created a premier estate and financial plan. After forming his law firm in 1984, he offered a series of public and private seminars to inform the public about using a Living Trust as the foundation of a family’s estate plan. Today, Parman & Easterday is one of the leading business and estate planning law firms in the Midwest. The firm’s primary focus is on business and estate planning, elder law, asset protection, and providing effective estate planning solutions for clients. Today, the firm’s premier estate plan design is referred to as a Legacy Wealth Plan. Mr. Parman is a frequent guest on the radio and can be seen on television talk shows explaining the importance of proper estate planning. Prosperity Productions selected Mr. Parman as a featured speaker in a nationally-recognized educational video on Living Trusts. He is the author of numerous published articles on financial and estate planning matters and the co-author of two books, Estate Planning Basics: A Crash Course in Safeguarding Your Legacy and Guiding Those Left Behind in Oklahoma: Settling the Affairs of Your Loved Ones. Mr. Parman is a member and Fellow of the American Academy of Estate Planning Attorneys. He is also a member of the Oklahoma and Missouri Bar Associations, the American Bar Association, and the Oklahoma City Estate Planning Council.
www.ParmanLaw.com OVERLAND PARK, KS 10740 Nall Avenue, Suite 160 Overland Park, KS 66211 Phone: (913) 385-9400 Fax: (913) 385-9422
OKLAHOMA CITY, OK 13913-B Quail Pointe Drive Oklahoma City, OK 73134 Phone: (405) 843-6100 Fax: (405) 917-7018
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