2023 Tax Update – Federal and Colorado Changes

With inflation hitting the US and World hard the last couple of years, changes to tax rates were expected and as always bring some benefits and some detriments.  Here are the latest numbers for the major taxes involved with estate planning and administration. 

Lifetime Estate and Gift Tax Exemption

With the New Year brings an increase in the U.S. estate and gift tax exemption. The new exemption will be $12.92 million per individual for 2023 gifts and deaths, up from $12.06 million in 2022.  Keep in mind this rate doubles for married couples, who can now have a combined $25.84 million before any federal estate tax will be due.

Annual Gift Tax Exclusion

This year the annual gift tax exclusion will be increase again by another $1,000 per recipient to a total of $17,000 per recipient or $34,000 per individual from a married couple. 

The annual gift tax exclusion is the amount under which a gift may be given tax-free without counting towards or using up any of the givers lifetime gift or estate tax exemption. For example, Mrs. Smith can give each of her 2 children $17,000 this year and her husband can also give them each $17,000, for a total of $34,000 to each child.  They also could give a total of $34,000 to each of their 5 grandchildren.   This transfer of $238,000 to their descendants in 2023 is allowed without touching their combined $25.84 million gift tax exemption.

2023 Irrevocable Trust Income Tax Brackets

Trust Income Tax brackets increased slightly (as did individual/joint( to the following:

10% $0 to $2,9000

24% $2,901 to $10,550

35% $10,551-$14,450

37% $14,451 and higher

Colorado Small Estate Affidavit

The Colorado Small Estate Affidavit value increased by several thousand dollars to $80,000.   This is the value over which a probate is required for individually held assets at someone’s death. 

Update on 2022 Federal Tax Numbers

The start of a new year means new adventures, exciting opportunities, and planning for the year ahead. For some, it’s the start of a new job, the promise of a new business venture, or a move to a new city. For others, it may be focusing on their finances, working towards new health and wellness goals, or finally tackling those tasks that didn’t get done last year.

In the world of estate planning, this means staying up to date on the latest estate and gift tax exemption announcements from the IRS, who recently announced the changes for 2022 to the lifetime estate and gift tax exemption, the annual gift tax exclusion, and the amount you may gift to a non-US citizen spouse. 

Lifetime Estate and Gift Tax Exemption

With the New Year brings an increase in the estate and gift tax exemption. The new exemption will be $12.06 million per individual for 2022 gifts and deaths, up $360,000 from $11.7 million in 2021.

What exactly does this mean?

This increase means that starting this week, an individual can shiel $12.06 million and a married couple can shield a total of $24.12 million during their lifetimes without having to pay any federal estate or gift tax. For a couple who had previously maxed out lifetime gifts, they may now give another $720,000 in 2022.

Annual Gift Tax Exclusion

This year the annual gift tax exclusion will be increasing by $1,000 per recipient due to inflation. The gift tax exclusion, which has held steady at $15,000 per recipient for the last four years, will now be $16,000 per recipient – the highest exclusion amount to date.

What does the annual gift tax exclusion do?

It allows a taxpayer to give the excluded amount per recipient tax-free without using up any of his or her lifetime gift and estate tax exemption.

Can you give me an example?

Absolutely!  For a married couple, each spouse can gift $16,000 per recipient per year, for a total of $32,000/year per recipient as of January 1, 2022. So if you and your spouse have two children and four grandchildren, you may transfer a total of $192,000 in 2022 to your descendants without touching your combined $24.12 million gift tax exemption.

Gifts to a Non-US Citizen Spouse

It is important to note that gifts to a non-US citizen spouse are limited when compared to gifts when both spouses are US citizens. 

US Citizen Spouse vs Non-US Citizen Spouse

For spouses who are both US citizens, unlimited amounts can be transferred to each other while both spouses are living without incurring any gift tax.  The reasoning behind this is that any assets in excess of the couple’s combined estate tax exemption ($24.2 million in 2022) will be taxed at the death of the surviving spouse.  In this case, transferring assets to the survivor only defers the tax that the IRS will eventually collect.

A non-US citizen spouse may not be subject to the US estate tax at death.  Thus in the case of a non-US citizen spouse, a US citizen spouse can transfer an initial $164,000 and then only the annual exclusion amount without being subject to the gift or estate tax. 

Vacations are the Perfect Time for Families To Talk About Estate Planning

Memorial Weekend is coming, and it traditionally has marked the start of the “summer” season.   I know we will be hosting and attending BBQs and neighborhood gatherings.   We are also busy finalizing summer plans.    These plans, like those of most Americans, include visiting with our extended families.  While there are few perfect times to talk with parents about their estate plan, the relaxed times you spend together on vacation can be one of them.

Here are some tips on how to conduct this critical conversation:

Find a good place to start.  One of the best ways to ease your parents into a financial discussion is to bring up your own.  Tell your parents that you were looking into your own estate plan and wondering if they had already executed their own.  Sometimes you can use scare tactics to good effect – there are usually a lots of stories about celebrities or others who have neglected to plan and paid the price with dire consequences.  If you missed these headlines,  read our March Newsletter for an article on the late Paul Walker’s estate.

Take it easy.  If you feel that parents may need some help with organizing their financial lives, be reassuring rather than applying pressure.  Let them know that you want to make sure their financial independence is kept intact for as long as possible.  Take things one step at a time, such as extending an offer to help them use online bill pay or assist them with organizing their information at tax time.

Respect boundaries.  Many parents feel uncomfortable discussing their finances with their children.  If you face this obstacle, let your parents know that you at least need to know where to find their important documents, or who does know where to find these documents besides them.   Reassure them that you aren’t attempting to control them in anyway but you simply want to help and make things as easy as possible for you and your siblings when something does happen.

Offer options.   Discuss the safety of important documents and suggest they either use a safety deposit box or fire-proof, water-proof safe for originals and have a third party, such as an attorney, financial planner, one of the family, or a trusted friend keep copies.   Learn and share information about services such as DocuBank, that provide online storage of medical directives and other important healthcare information and the importance of everyone’s primary care doctor having copies of these documents as well.

Sometimes initiating a conversation with parents about estate planning can be easier with the help of a Personal Family Lawyer®.   At Holmes Shirley Law, we can help.  Call our office today at 720-241-7621 to schedule a time for us to sit down and talk about designing an estate plan that fits the needs of you and your family.

What’s Changed in Your Life?

Estate planning is not a “set it and forget it” kind of thing. Your life changes, your assets change, the laws change — and if your plan doesn’t change, your family gets caught holding the bag. The people you love most end up bearing the brunt of your failure to act.

Conducting a proper review of your estate plan will help identify the potential need to update your plan because of:

Life transitions:  Have any babies been born, loved ones died, people gotten divorced or married?   If so, you need to revisit your plan.

Changes in the law:  Changes in federal and state tax laws may require updates to your healthcare and financial powers of attorney. State regulations can also be revised to open up new wealth planning strategies that should be a part of your estate plan.

Changes in assets:  Has your net worth gone up or down?  Have you invested in any new assets, such as businesses,  opened new bank accounts, retirement accounts, insurance policies, real estate or anything similar?  If so, your plan needs to be revisited.  And the spreadsheet of assets you have for your family (you DO have one, right?) needs updating.

Funding of assets and beneficiary designations:  One of the most common mistakes people make is not properly completing the transfer of assets into a trust within their estate plan.  Another common error is having beneficiary designations that are inconsistent with the distribution language in the estate plan.  We recommend a review of those matters annually.

If you do not review your plan and update it regularly, your family will have to deal with the consequences. If you would like more information about creating or updating your estate plan, call our office today at 720-248-7621 to schedule a time for us to sit down and talk. We normally charge $750 for an Estate Plan Review but if you are an existing client, we’ll waive that fee and if you are coming to us for the first time and book an appointment in April or May, we will waive all but $250 of the fee.  Call 720-248-7621 today and mention this article.

The 4 Legal Agreements Every Business Owner Needs

One of the most common questions small business owners want to know is what kind of legal agreements they need. And while the answer to this question depends a lot on what kind of business you operate, there are four key legal agreements that virtually every business owner needs to protect and operate their business legally:

1. Owner Agreements. If you are in business with another person, it doesn’t matter if your business structure is a partnership, an LLC or a corporation – you will need an owner agreement. These can take the form of a partnership agreement, an operating agreement, a founders’ agreement or a shareholders’ agreement. The agreement, or sometimes multiple agreements, detail how ownership in the company is being distributed, how compensation will be paid to owners and managers, how capital contributions will be handled and other operational issues – including what happens if someone wants out, becomes incapacitated or dies.
2. Employee/Contractor Agreements. These agreements set the rules for how your relationship with employees and contractors will be governed. Business owners that use independent contractors want to be sure that the relationship is documented properly, especially in terms of allocating responsibility for payment of taxes and exclusion of such items as workers’ compensation and unemployment. Having employment and contractor agreements for everyone that works for/with your business ensures that expectations for job performance are spelled out and what the grounds are for termination.
3. Vendor Agreements. Every business needs formal agreements with vendors and suppliers that help ensure the needs of the business are being met as agreed upon. Issues of exclusivity, indemnification and liability all need to be set forth in your vendor agreement to protect your business against claims where a supplier is at fault.
4. Customer Agreements. Whenever you make a sale to a customer or client, you have entered into a contract. Thus you want to be sure that the terms and conditions of your agreement for sale of goods or services is designed to provide both the business and the customer with the proper legal protections. If you are making sales online, you need to be sure you have the proper terms of service and privacy policy agreements on your website that details what customers can expect from the business.

If you are interested in learning more about business protection strategies, call us today at 720-248-7621 to schedule an appointment to discuss how we can help you set up your business for success.

Year End Beneficiary Designation Review – Make it A Holiday Tradition

When you look around your holiday table this year, you will probably not be thinking about the beneficiary designations on your 401(k), IRAs or life insurance policies.  But you should… perhaps make it a new holiday tradition.

Having the wrong beneficiary designated on these assets and on other things like bank accounts, annuities and 529 college savings plans is probably one of the biggest estate planning mistakes people make.  This is because most of us name those beneficiaries when we initiate a plan or open an account and then forget to change or update the designations as our personal and financial lives change.

However, life does change.  Often more frequently than we think. This is why you need to review and update your beneficiary designations at least once a year.  For example, here are seven scenarios that could cause a change in beneficiary designation:

  • You got married, divorced or remarried
  • You changed jobs and moved your retirement account
  • One of your beneficiaries died
  • The birth of a child or grandchild
  • You moved your account to another financial institution
  • One of your beneficiaries became disabled
  • You did created or updated a trust or will

Additionally, it is not uncommon for an institution to incorrectly process a beneficiary designation, especially if you are not designating “standard” beneficiaries.

Not having the correct beneficiary designated (or designating a minor) can wreak havoc on your family when something happens to you as well as create tax issues for your heirs.  You could unintentionally disinherit the very people you care the most about and potentially tie up your estate in probate or, worse, litigation.

Enjoy your holiday with family, but take an hour or two before the New Year and make it a point to review your beneficiary designations and , if necessary, update them.

If you don’t already have an estate plan – or have one that needs to be reviewed and updated – make 2014 the year you get this done.   Please call us today to schedule your appointment at 720-248-7621.

Six Tax Questions to Ask Before Year-End

Everyone’s “to-do” lists seem to grow longer at this time of year, but yours may be incomplete if you haven’t yet reviewed  and answered these six tax questions before the end of the year. If you need help answering these questions, please call our office at 720-248-7621 for an appointment or a referral to a trusted tax professional that can help you.

Should I defer or accelerate income?  If it looks like you’ll be in a higher tax bracket in 2014, ask if you should pull more income into this year.  Conversely, if you will be in a lower tax bracket next year, ask if you should defer income until January.  In addition, find out if you should accelerate deductions by paying any income or property taxes not due until 2014 this year.

Should I take any gains or losses this year?  If you are currently in a low tax bracket and have made gains on your investments this year, you may want to consider selling some investments to realize lower tax rates on those gains.

Should I do a Roth conversion?  If you have a traditional IRA, you may want to convert all or some of the assets to a Roth IRA, especially if your retirement is years away.  While you will pay taxes on those assets now, your earnings will grow tax-free in a Roth IRA.

Should I make any changes to my FSA or HSA for 2014?  If you have a flexible spending account or health savings account through your employer and anticipate bigger medical expenses in the new year, you may want to increase those funds to allow yourself to use pretax money for out-of-pocket medical costs.

Should I be making charitable contributions?  If you made more money this year, you may want to think about reducing your taxable income with charitable contributions.  Gifting appreciated securities will allow you to avoid the capital gains tax while still deducting the full amount of the donation.

Should I be making gifts to family?  In 2013, you can give up to $14,000 (or $28,000 if you are married and your spouse participates) to as many individuals as you want.  This allows you to assist family members while removing taxable assets from your estate.  It’s important that if you are going to be giving financial gifts, you call us before hand to discuss options available to so those gifts are protected from bankruptcy, divorce or other creditors forever.

If you would like more information about tax-saving strategies, call our office today at 720-248-7621 to schedule a time for us to sit down and talk.  Everyone’s calendars are pretty full this time of year, so call today to make sure you can get in.