Estate Planning and Taxes in Kentucky

1
Estate Planning Taxes

• What You Need to Know About Planning For The
  Future

2
Death Taxes

• We hear a lot of talk about death taxes from
  politicians, pundits and armchair economists.
  Its a popular talking point, but what does it
  really mean for those planning their estates?
  Lets take a look at estate planning, taxes and
  how it impacts most of us.

3
Estate Planning Terms

• First, lets define a few basic terms
• Estate - This refers to all of the property and
  assets that a person owns or controls, including
  land, houses, cars, furniture, etc. It also
  includes businesses, business interests,
  insurance, pension benefits, debts, obligations
  and any legal claims a person has against others.
  
• Estate Tax - This is a tax on the net value of a
  deceased persons estate.
• Estate Planning - Estate planning means
  designating who will receive your property after
  you pass, and how you will be cared for if you
  are no longer self-sufficient. This is
  accomplished through a number of legal documents
  and actions. The most widely used estate planning
  tool is a will, which sets forth who will inherit
  your property.

4
The Tools of Estate Planning

• Assisted living and advanced health care
  directives
• Financial powers of attorney
• Medical powers of attorney
• Wills, living wills, and testamentary trusts
• Revocable and irrevocable trusts
• Family limited partnerships and limited liability
  companies
• Insurance planning and life insurance trusts
• Business succession planning.

5
Estate, Inheritance and Death Taxes

• It is important to know the difference between
  inheritance and estate taxes.
• Estate taxes are placed on the net value of the
  deceaseds property.
• Inheritance taxes are placed by the state on the
  person receiving the property. Inheritance taxes
  are based on the beneficiarys relationship to
  the deceased.
• Death tax is a general term that can apply to
  both estate and inheritances taxes.

6
Who Pays Death Taxes in Kentucky?

• Kentucky has no estate taxes, though federal
  rates still apply. Inheritance taxes in Kentucky
  fall into three categories
• Class A - Immediate family members, such as
  spouses, parents, children and siblings. These
  beneficiaries are exempt from inheritance taxes
  in Kentucky.
• Class B - Extended family members, including
  cousins, nieces, nephews, uncles, aunts,
  grandchildren, in-laws, etc. - these people pay
  an inheritance tax on amounts over 1,000.
• Class C - This applies to any other
  beneficiaries. Class C beneficiaries pay
  inheritance taxes on amounts over 500.

7
What About Federal Estate Taxes?

• Federal estate taxes apply mostly to large
  estates. In 2016, for example, exemptions are
  made on estate values up to 5.45 million (per
  person).
• Approximately two out of every 1,000 estates were
  taxed in 2015.
• Taxed estates pay roughly one-sixth of their
  value in taxes.
• There exist a number of ways to make sure that
  heirs dont face large tax rates on an estate.

8
Easing Taxes On Estates

• Through sound estate planning, you can greatly
  reduce the amount of money that heirs will have
  to pay through estate and inheritances taxes.
  While there are many different methods, a common
  goal is often to remove holdings from your own
  estate to reduce the amount of taxes owed after
  you pass. This can be done through trusts, gifts,
  business entities, insurance and joint bank
  accounts.  

9
Use of Trusts in Estate Planning

• A trust is an arrangement in which a person
  transfers property to someone else who holds and
  manages that property for a third party. Here
  some examples of trusts that estate planners
  sometimes use as devices to ease tax burdens
• Testamentary Trusts versus Living Trusts - A
  testamentary trust is done through your will or
  other legal devices after you pass. You form a
  living trust or an inter vivos trust that will
  take effect during your lifetime.
• Grantor Retained Annuity Trusts - Through a GRAT,
  you set up annual payments to the beneficiary for
  a designated period of time.
• Spendthrift Trust - In a spendthrift trust, you
  designate an independent trustee (for example, a
  bank) to hold the trust for the beneficiary. This
  form of trust often protects the assets from any
  creditors the beneficiary might be indebted to.
• Qualified Personal Residence Trust - This is
  similar to a GRAT, but puts your home into a
  trust.
• Charitable Remainder Trust - Through CRT, you put
  income into a trust that reduces capital gains,
  income and estate. You also get a charitable tax
  deduction, while donating to a favored charity.
• Charitable Lead Trust - In a CLT, the money goes
  directly to a charity during your lifetime but
  goes to your beneficiaries after you pass.

10
Other Financial Instruments For Reducing Taxes

• There are many other devices you can use, many of
  which utilize trusts, to ease the tax burden on
  your estate. Each comes with certain
  stipulations, advantages and disadvantages. They
  include
• Joint bank accounts - Depending on how you set up
  bank accounts (i.e., an account with rights of
  survivorship) and the stipulations of your will,
  a joint bank account can be an effective method
  of estate planning.
• Gifts - Though there is a cap on how much you can
  give as a direct gift without taxes, you can
  spread out the gifts to multiple recipients or
  use trusts as a vehicle to gift portions of your
  estate to loved ones.
• Businesses - Different business structures, like
  LLCs or FLPs, allow you to direct income or
  holdings into a business, which can then be
  accessed by other stakeholders.
• Insurance - One example would be an Irrevocable
  Life Insurance Trust, which, if properly
  established, will not be considered part of your
  estate upon your passing. They can be complex but
  effective methods of providing your family the
  ability to pay other estate taxes or leave money
  behind for your heirs.

11
Planning Ahead For End-of-Life Care

• While planning your estate, youll also want to
  make certain decisions that protect you, your
  assets and your family should you become unable
  to do so for yourself.
• Powers of Attorney - Through a POA, you designate
  someone to act on your behalf. There are medical
  powers of attorney and financial powers of
  attorney.  
• Living Wills - This designates your wishes
  regarding your end-of-life care. You can specify
  whether you want to be kept alive by feeding
  tubes or ventilators and whether you want to
  donate your organs after you pass, for example.

12
Are You Planning For The Future?

• As you can see, there are many devices you have
  at your disposal to plan your estate to reduce
  the amount of inheritance and estate taxes that
  will be owed after you pass. At Bunch Brock, we
  have helped many clients plan for the future of
  their estate and their families. We can tell you
  that planning ahead is a wise move with great
  benefits for you and your loved ones.
• For help with estate planning in Kentucky,
  contact Bunch Brock to learn more.
• http//www.bunchandbrocklaw.com