TAX PLANNING FOR THE MIDDLE CLASS ESTATE: EXAMPLES MARCH 9, 2016 ANNETTE K. EATON

FEDERAL GIFT TAX, FEDERAL ESTATE TAX, FEDERAL GENERATION SKIPPING TRANSFER TAX, AND MASSACHUSETTS ESTATE TAX: RATES AND EXEMPTIONS Federal Gift Tax Exemption Amount: $5,450,000 in 2016 (and adjusted each year for inflation). Federal Gift Tax Rate: 40%. Federal Estate Tax Exemption Amount: $5,450,000 in 2016 (and adjusted each year for inflation). Federal Estate Tax Rate: 40%. Federal Generation Skipping Transfer Tax Exemption Amount: $5,450,000 in 2016 (and adjusted each year for inflation). Federal Generation Skipping Transfer Tax Rate: 40%. Massachusetts Estate Tax Exemption Amount: $1,000,000. Rates: 0-16% (Vanishing Exemption).

EXAMPLE CLIENTS Sally & John -Married -Assets: $2 million Sally & John want to pay as little Massachusetts and Federal Estate Tax as possible.

“I LOVE YOU” WILLS Sally’s Will John’s Will $1.5 million$500,000 Sally’s Will $2 million Massachusetts Estate Tax: $99,600

TRUST TAX PLANNING John’s TrustSally’s Trust Marital TrustFamily Trust $1.5 million $1 million$500,000 Massachusetts Estate Tax: $0, Savings: $99,600 Requirements for Marital Trust: “Qualified Terminable Interest Property”. - No beneficiary other than spouse. - Spouse has qualifying income interest for life. - Elect to treat as qualified terminable interest property. - May grant spouse special power of appointment at death. Included in Sally’s Estate at Death: $500,000 + $500,000 Marital Trust $1,000,000

THE CASE OF THE TWO SALLYS: THE POWER OF GIFTING Sally’s Irrevocable Trust F/B/O Children and Grandchildren Sally #2 Transfers $500,000 Sally #1: Sally – Widowed Asset Value: $2 million Sally #1 Dies: Massachusetts Estate Tax: $99,600 Sally #2: Sally – Widowed Asset Value: $2 million Sally #2 Dies: Massachusetts Estate Tax: $64,400 Savings: $35,200

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