Federal Estate Tax Plan

We help residents in Sun City, TX, Georgetown, TX and San Antonio, TX legally plan for reducing liability for federal estate taxes.

The federal gift and estate tax exemptions are unified at $5,450,000 per person for individuals who pass away in 2016. All assets given in excess of the exemption are taxed at 40%.

The generation-skipping transfer (GST) tax exemption also remains at the same level as the gift and estate tax exemption ($5 million, adjusted for inflation). This tax, which is in addition to the federal estate tax, is imposed on amounts that are transferred (by gift or at your death) to grandchildren and others who are more than 37.5 years younger than you; in other words, transfers that “skip” a generation. Having this exemption be “permanent” allows you to take advantage of planning that will greatly benefit future generations.


The “portability” provision allows the unused exemption of the first spouse to die to transfer to the surviving spouse, without having to set up a trust specifically for this purpose. However, there are still many benefits to using trusts, especially for those who want to ensure that their estate tax exemption will be fully utilized by the surviving spouse.

Credit Shelter/Bypass Trust

Under Federal law, spouses have the opportunity to create a trust, commonly referred to as a “bypass” trust, upon the first spouse’s death, and thereby save considerable Federal estate taxes upon the surviving spouse’s death. Such a trust can save as much as 35% of the value of the assets in the trust under current law. When a married couple’s estate is large enough, a marital trust can be created as well. Both the bypass trust and the marital trust can be created within a revocable trust agreement or within each spouse’s Will. The property of these trusts cannot be distributed to new spouses, new children, or to creditors, but are instead earmarked for the children or other beneficiaries of the spouse who died first.

Intentional Grantor Trust

An Intentional Trust Agreement names a child or other person for whom the trust is created to be the primary beneficiary, and distributions shall be made for his or her health, support, maintenance and education. The descendants of such child or other person are secondary beneficiaries of the trust, and distributions may be made to them for their health, support, maintenance and education. Your clients may transfer properties such as cash, stocks, bonds and other securities, and real property to the Trustee of the trusts. However, they are prohibited from transferring life insurance on either of their lives to this trust.

An Intentional Trust Agreement is intentionally defective for income tax purposes. The grantor is treated as the owner of the trust for income tax purposes by virtue of the grantor trust rules under Sections 671 through 679 of the Internal Revenue Code. However, despite the existence of language causing grantor trust treatment the grantor will not be treated as the owner of the trust for estate tax, gift tax, or generation skipping tax purposes.

The advantages of a trust where the grantor is treated as the owner for income tax purposes but not for estate, gift, and GST purposes are that the income of the trust will be taxed to the grantor’s 1040 and transfers and transactions between the grantor and the trust will be disregarded because the trust and the grantor will be treated as the same person for income tax purposes. When the grantor is treated as the owner of the trust for income tax purposes, they will need to take into account trust income, deductions, and credits as if the trust were not in existence.

Charitable Planning to Reduce Gift Taxes

Trusts with interests that are split between charitable and noncharitable beneficiaries must adhere to strict requirements. Charitable lead trusts provide an income interest to charity; charitable remainder trusts or pooled income funds give a remainder interest to charity following noncharitable income interests. Invasions of trust for noncharitable use are barred.

A charitable lead trust provides a charity with income for a fixed period, after which individuals receive the remainder. The charitable interest must be a guaranteed annuity or unitrust. No additions to an annuity trust are allowable.

A charitable remainder annuity trust pays the noncharitable beneficiary on an annual basis, a sum certain of at least 5 percent and not more than 50 percent of the initial net fair market value of the trust’s assets. When the income interest ends, the remainder goes to charity. No invasions for noncharitable beneficiaries or additional contributions to the trust are allowed.

A charitable remainder unitrust pays the noncharitable income beneficiary an amount determined by fixed percentage (at least 5 percent and not more than 50 percent) of the trust assets. The trust may last for up to 20 years or for the life of the income beneficiary. Only the unitrust interest is payable to the noncharitable beneficiary. If the trust’s income is lower than the unitrust amount, the beneficiary may receive the lower amount, with later payment of the deficiency allowed.

Individuals may contribute to a pooled income fund, which is managed by a charity. The donors are entitled to a charitable deduction for the gift of the remainder interest to the public charity. In general, the fair market value of a remainder interest in a pooled income fund is the value of the contributed property reduced by the present value of the retained income interest.

Politics and Federal Estate Tax 2016

The IRS calls the estate tax “a tax on your right to transfer property at your death.” https://www.irs.gov/businesses/small-businesses-self-employed/estate-tax (September 23, 2016). Democratic presidential candidate Hilary Clinton has reportedly suggested that individuals giving more than 500 million dollars in gross assets upon death should be taxed at 65 percent. http://fortune.com/2016/09/23/hillary-clinton-inheritance-tax-billionaire-estates/ (September 23, 2016). Mrs. Clinton has also suggested that the individual exemption should be reduced from 5.45 million to 3.5 million. Republican presidential candidate Donald Trump is reported to have suggested that the estate tax should be eliminated.

Attorneys at Marquardt Law Firm, P.C. empower individuals, families, and businesses to understand the federal estate tax. We show our estate planning clients in New Mexico, San Antonio, Georgetown, and Amarillo which estate tax exemptions and deductions they might use to legally reduce their tax liability. Certified Public Accountants (CPAs), enrolled agents, tax preparers, wealth advisors, certified financial planners, and tax attorneys work with us to make sure that estate plans help to reduce tax liability and will help clients accomplish their goals through gifts and bequests to family members, friends, and charitable organizations.

An individual’s first step to reducing his or her estate tax liability is to hire an attorney with experience helping people who are subject to federal estate taxes. Find an attorney who will listen to all of your goals. Typically, individuals who are subject to the federal estate tax are concerned about:

  • maintaining control of their own assets, 
  • protecting privacy, 
  • maintaining lifestyle, 
  • protecting assets from government confiscation and frivolous lawsuits, 
  • protecting assets from administrative expenses and delay, 
  • continuing and maintaining business value, 
  • building character in family members and maintaining social capital, 
  • minimizing gift and estate tax liability, and 
  • reducing income tax liability for themselves and their heirs.

In order to accomplish these goals we use various strategies that are customized to the facts and circumstances unique to our clients. Attorneys with a one size fits all approach are not going to accomplish all of your goals. Clients who hire attorneys at Marquardt Law Firm, P.C. to reduce federal estate tax liability will discuss their goals and various design plans in two separate meetings so that our clients’ goals are achieved now and after death.

We are equipped also to counsel, guide, and prepare 709 gift tax returns and 706 estate tax returns so that our client and our clients’ estates comply with federal tax regulations.