The Basics of Estate Taxes
Estate taxes are a transfer tax that the federal government imposes on the transfer of wealth upon a person’s death. They are designed to tax the transfer of property to beneficiaries of an estate.
Under the federal code, only estates worth more than $12.06 million ($24.12 million for married couples) as of 2018 are subject to estate tax. This is due to what is called the lifetime exemption. This amount is annually adjusted for inflation. A tax rate of 40% applies to estates that exceed that exemption level.
What this means is that most individuals do not have to pay estate taxes. However, some states also impose estate taxes separate from the federal estate tax. For example, Illinois currently has a $4 million exemption and a 40% estate tax rate. Other states with lower exemptions include Connecticut ($2.6 million), Hawaii ($5.49 million) and Minnesota ($2.4 million).
Inevitably , an individual or couple may eventually die before reaching their exemption amount. In those cases, the estate tax becomes due. The executor must file a return on IRS Form 706. While the estate tax portion is due nine months after death, there are up to five years of extensions available in certain situations, such as where there is a dispute with the IRS over the estate’s value.
If an estate has to pay an estate tax, it will be assessed on all property owned by the decedent at the time of death, including real property, stocks and bonds. What is termed "gross estate" is then calculated, which includes the value of life insurance proceeds on decedent’s life.
On the other hand, there are numerous deductions that can be taken against the gross estate in order to arrive at the taxable estate. These include, but are not limited to, debts, funeral expenses, losses during the settlement period, bequests to a spouse or charity, and deductions for state death taxes.
How an Estate Tax Lawyer Can Help You
Finding the best estate tax lawyers near you can be confusing if you are not familiar with the estate planning process. This is especially so since there are many types of estate planning lawyers. One of the most common is a basic estate planning lawyer. In total, however, there are three different types of estate planning lawyers to choose from. These include: Basic estate planning lawyers, Special needs estate planning lawyers, and Estate tax lawyers.
First of all, the world of estate planning lawyers is filled with many other specific niches. Yet, even those specific niches could be further divided. For example, there are trusts and estates lawyers that do not focus on tax planning. Likewise, there are others who focus on estate tax planning. As you can see, this is a broad world.
Estate tax lawyers focus on terms like income tax, gift tax, GST tax, and estate tax in general. Their job is to focus on minimizing your taxes throughout your lifetime. Specifically, that means during your lifetime and death.
An experienced estate tax lawyer should be well versed in the often confusing estate tax loopholes, tricks, and rules. That includes the following:
Most importantly, estate tax lawyers focus on ensuring that you are in compliance with all the income, estate, and inheritance tax laws of the different states, and local governments. Many people do not understand that such laws exist. They are basically a declaration rather than a tax. The tax may only be applied at death, but the law itself goes into effect as soon as you have money that is subject to it.
How to Locate Nearby Estate Tax Lawyers
A good method to find tax lawyers is via your state Bar Association. Associations are generally not able to recommend specific attorneys for particular matters, but they can provide lists of all tax lawyers who are members of the state bar association.
The Internet is also a helpful tool to finding estate tax lawyers in your area. Sites like lawyers.com, see https://lawyers.findlaw.com/lawyer/lawyer-search.html. Most legal websites will permit searches by legal issue, practice area or location.
Your accountant or financial advisor may also be a great source of referral. They often have relationships with the best estate tax lawyers in your area and will be able to recommend an attorney who is best for your personal matter.
Local estate planning lawyers association are also a great resource to find lawyers. Most states have this type of group which is usually comprised of lawyers who focus their entire practice on estate and trust planning matters. A local estate planning lawyers’ society will often have a website that can direct you to a local estate tax lawyer or even grantor trust lawyer and their areas of practice.
Questions to Pose to a Potential Estate Tax Lawyer
Your initial meeting is the time to determine whether the lawyer you are meeting with is the right estate tax lawyer for you. For this reason, it is a good time to ask the following questions:
1. How long have you been practicing, and how much of your practice is devoted to estate planning?
You want to make sure your lawyer has ample experience in your particular area of need. If the majority of your lawyer’s practice consists of preparing wills and trusts, he or she may be the right one to handle your power of attorney, will, and health care documents. If, however, your primary need will be reducing or eliminating taxes, your lawyer should have significant experience in that area as well.
2. Will you have direct contact with me, or will you work through associates? Will I have to pay extra for talking with other lawyers or staff members at your firm?
Many clients prefer to work directly with a partner with substantial experience in the area of law instead of junior associates or paralegals. As such, it is important to determine who exactly you will work with on your estate planning or administration , and how much of your lawyer’s hourly rate you will pay when they delegate work to another lawyer or paralegal.
3. Tell me about your process in preparing an estate plan.
Ask your lawyer about his or her general steps in the process of preparing an estate plan. It should include the following steps:
a) Interview to learn about your specific situation.
b) Identify and place a value on your assets.
c) Determine who will receive your assets upon your death or incapacity, and consult with you about the most effective means of achieving your goals.
d) Present a diagram showing how your assets are distributed upon your death or incapacity, and go over your different options with you.
e) Formalize the plan by drafting the appropriate documents.
f) Make or review changes to your plan as your situation, family, assets, or laws change.
4. How do you bill for your services?
Most lawyers bill by the hour, but many estate tax lawyers offer package pricing for estate plans. For estate tax lawyers, however, it is very common to bill by the hour. Rates may vary significantly from lawyer to lawyer, so make sure to ask what your estate tax lawyer charges for their services.
Estate Tax Lawyers and the Costs Involved
When you are in the midst of dealing with estate tax issues, you begin to realize why it is so important to find the best estate tax lawyers near you. In order to solve problems for you, there are some costs involved when hiring a lawyer. It is important to understand the factors that affect legal fees so that you can better use the services of the professionals you are considering hiring.
One of the main factors that contributes to the amount you may have to pay to an estate tax lawyer is their level of experience or specialization in a particular subject area. If you know that the attorney specializes in estate tax law, and they have experience in the subject matter that pertains to your situation, you may be willing to pay more than you would to a general law practitioner, or a different specialist who is unfamiliar with the nuances of your situation. As a general rule, specialists will cost more than general practitioners, and that is certainly true in the area of estate tax law.
Another factor that can influence the fees a lawyer will charge is the size of the firm. Typically, when you hire a solo practitioner or a small firm, the legal fees will be lower than for a larger firm. However, if the larger firm has specialists in areas that are important to your estate tax needs, you may give increasing weight to this factor. The size of the firm may also affect client service issues, such as return phone calls from lawyers who are too busy, or lack of attention to your problem. Some large firms care about their clients and treat them well, while others are not able to provide flexible hours or appropriate levels of client service.
In such a niche area as estate tax law, you need to hire a specialist in this area of the law; otherwise you face the very real possibility that your estate plan may be challenged in court, or otherwise not work as planned after your death. It may not take a long time to fix the estate tax problem you face, but if your matter is related to taxes, you need a lawyer who can help you, and this will not come cheap.
Making the Most of Your Lawyer-Client Relationship
A final area we will discuss is getting the best results from your estate tax lawyer once you have engaged him or her as a client. The most important thing to remember in this area is that, similar to your accountant, your attorney will work more efficiently when you provide what he or she requests, and will be less efficient when you provide less than what is requested. What we mean by this is that most attorney’s fees will be charged at an hourly rate, which can be significantly higher than what your CPA or other advisor may charge. This hourly rate is justified in some cases, such as drafting complex corporate documents, offering expert testimony at a trial, or any other service where the attorney’s skill and experience is heaped on the task. It is therefore important to ensure that you are communicating the right information to the attorney, so that he or she can get the job done and move on to the next task, (instead of "running the meter" for unnecessary time.) Many small issues can be resolved with a short call or email, and occasionally you may need to do a remote meeting to discuss the larger issues. However as much time as possible should be spent drafting or reviewing the documents, as this is when you are getting the most value for the money you are spending . Your attorney will be more productive, and your costs will be lower, if you can make sure your appointments are attended by the people who will be able to answer questions for the attorney, and getting information to the attorney in a timely manner. In addition, as in any relationship, using clear and unambiguous language, and sticking to the point at hand will reduce the time needed to communicate a particular issue. (Also, it may be wise to attempt to engage only one person in the communication if possible, as too many people on the phone or email will obviously increase the time it takes to get answers to questions, etc.) Of course it is easier said than done, and this may be especially so with organizations that have multiple principals such as multiple family members, partners, shareholders, or board members. Sometimes several people need to be present at meetings, to make basic decisions, and larger group meetings will inevitably take much longer to get through than a simple phone call or email conversation. However, striving to streamline the process by using the most efficient communication devices at the right times will help keep the costs down and get your project completed in a timely manner.