Types of Tax
Once Clancy is fully aware of his client’s wishes and desires for their particular estate plan, his job is to make sure everything is positioned in the most tax friendly context as possible. There are 5 main areas of tax that Clancy keeps track of to make sure his clients estates are soundly planned for:
Estate Tax
This is the tax that is assessed on the value of your estate (including your cash, investments, real estate, AND life insurance proceeds) at your death. There is a threshold that must be met before the tax is triggered. This threshold is ever changing and in 2011 is set to drop to a level not seen since 2000. Making sure your estate will not suffer an estate tax is a key objective in Clancy’s planning process.
Income Tax
When considering how to leave property to your beneficiaries, it is important to consider the income tax consequences of your decisions. In the end, you may have objectives that are more important to the lowest tax option, but clients should be informed before they make such important decisions.
Capital Gains Tax
This is the tax that is assessed when an asset has appreciated over time and then the asset is sold. The tax is paid on the amount the property exceeds the original (and possibly depreciated) tax basis. There are special rules about capital gains taxes that should be learned which affects how you will handle certain types of property during your life, and whether or not you give property away during your life, or wait for the family to inherit.
Gift Tax
This tax runs alongside and in tandem with the Estate Tax. One must be aware of the annual amount you can give away without triggering the gift tax. Also, there is a lifetime maximum on gifts that a person can make.
Generation Skipping Tax
This tax is imposed when a taxpayer leaves too much property to a generation below their children’s generation. This is one of the most expensive taxes if it applies.