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Bell speaks about tax exemptions and gifting at WyFB Legislative meeting

Cheyenne – There are a lot of options and decisions to make when constructing an estate. There is no one right answer for everyone, explained Jason Bell, financial advisor for Mountain West Farm Bureau. 

“If a property owner dies, we don’t want their property to be worth anything. If they are going to sell their property, we want it to be worth a lot,” stated Bell. 

“Sometimes it bothers people that when they die we don’t want their land to be worth anything,” commented Bell. “We are trying to minimize taxes. The land might be worth a lot, but we don’t want it to go to the IRS.”

Tax exemptions

“When a property owner is putting together their estate planning documents, they should give their property what they think is a fair market value and worth,” said Bell. “Then, let the attorneys and financial professionals take that value and make it what is the most advantageous for the owner.” 

The estate tax exemption is $10.5 million for a married couple, and those assets can consist of land, cash or other valuables. For single individuals, the tax exemption is $5.3 million. 

“If property owners don’t have $10.5 million, they won’t owe any estate tax when they die, likewise for a single individual if their property assets are less than $5.3 million,” explained Bell. 

“If a married couple has a taxable estate that is more than $10.5 million, there is a 90 percent chance that they are going to be audited by the IRS,” commented Bell. “An appraisal of the property will also have to be conducted.” 

Revocable trust

Bell added that an appraisal is not needed to construct a revocable trust for an estate. A revocable trust is a form of estate planning, instead of having a will.

“Tax exemptions are rather high right now, at $5.3 million per person, and in death, if a property owner falls under that value, they want their property to be valued as high as possible because they get what is called a step-up in basis,” said Bell.  

Step-up basis

Any asset that is purchased has basis, and when that asset is sold for profit or inherited, it now has stepped-up in basis. 

“In death, if an individual falls under that tax exemption value, they want their property to be valued as high as possible because, at death, the property gets a step-up in basis,” said Bell. “The next generation will get a step-up in basis at the free-market value at the date of the person’s death.”

Along with stepping-up in basis, each asset is also subject to capital gains tax on the profit of the asset when it is sold. 

Capital gains tax

“Right now, capital gains tax is 15 percent, up to $250,000. Over $250,000, it is an extra 3.9 percent for the health care law,” explained Bell. “If the profit is over $450,000, another five percent is added.” 

When a person wants to sell an inherited asset, that asset has already received its step-up in basis and therefore is not entitled to capital gains tax. 

“At every death, there is a step-up,” said Bell. “If a property owner is above that tax exemption threshold, they want to minimize their estate tax exposure, but if the property owner is under that $5.3 million mark then they want their value to be as high as possible to reduce capital gains tax.” 

Gifting

Gifting is another estate planning strategy, and annually, an individual can gift $14,000 per person without filing a gift tax return. If the person gifting the money is married, they can gift up to $28,000, and when one married couple gifts to another married couple, a total of $56,000 can be gifted. 

“A lot of money can be gifted without filing a gift tax return,” said Bell. “If an individual gifts away more than the limit, they do not automatically owe gift tax. They just have to file a return.”

Bell also mentioned that a person could give up to the estate tax limit of $5.3 million, and it will come off of their tax exemption when they die. 

Gifting strategy

“If an individual is using gifting as an estate planning tool, they probably want to gift the asset that they think is going to appreciate the most,” advised Bell, “because it is the appreciation of the gift that they are really benefitting from.” 

Types of assets that appreciate the most in value are mineral rights, insurance policies and stocks and bonds. 

“We want to make sure if individuals gift, they gift properly,” warned Bell. 

Bell also warned about selling gifts.

“If the person receiving the gift sells it, they retain the basis of the person gifting,” he said. “They are going to have to pay capital gains tax all the way back to what the person who gifted it paid for it.”

Bell spoke at the Wyoming Farm Bureau Federation 2014 Legislative meeting on Feb. 28 about estate planning.

Madeline Robinson is the assistant editor of the Wyoming Livestock Roundup and can be reached at This email address is being protected from spambots. You need JavaScript enabled to view it..


SIDEBAR:
Generation-Skipping Transfer

Gifts can also be given to a trust or to a beneficiary’s children. 

In the Tax Reform Act of 1986, the IRS made the Generation-Skipping Transfer (GST) tax. This tax law was created in response to many wealthy individuals who were passing their inheritance down to their grandchildren to reduce some of the estate tax being applied at every generation. 

“An issuer of a trust can identify some of their money as GST exempt, and that will not be included in their kid’s estate,” explained Jason Bell, financial advisor for Mountain West Farm Bureau. “However, it doesn’t save any of the estate tax.”