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It’s the New Year – Is Your Estate Plan In Order?

In Japan, we have a tradition of scrubbing the house inside and out at the end of a year to welcome the New Year, with everything clean and in order.  I remember many late December days, wiping the glass windows, re-papering shoji screens, and holding the ladder steady while my mother got up to clear the cobwebs.

Perhaps that sense of seeking order in the beginning of a new year is universal, as Americans have “New Year’s Resolutions” and I usually get extra calls and emails in January from people who want to create or update their estate plans.  It may also be that getting tax information in anticipation of April 15, makes them think about financial planning and estate planning – they go hand in hand with tax planning.   With the new year, we have (some) new estate and gift tax figures I want to share:

Federal estate and gift tax:

    • The gift tax annual exclusion remains at $14,000 – This is the exclusion that people still remember being $10,000.  It has been going up with inflation adjustment for some years. There is no change this year from last year, due to the methodology for calculating this indexed exclusion.
    • The expanded gift tax annual exclusion for noncitizen spouses is now $147,000.
    • The estate and gift tax applicable credit now exempts $5,430,000 for U.S. citizens and residents. This credit is variously known as the unified credit, exemption, exclusion, etc.
    • The tax rate is still 40%.

Washington State estate tax:

    • The exemption is now $2,054,000, per inflation adjustment.
    • The graduated rates range from 10% to 20%.

Oregon State estate tax:

    • The exemption is $1,000,000.
    • The graduated rates range from 10% to 16%.

For people who have an international element to their estate planning – whether because they are from another country, have assets in other countries, or have beneficiaries in other countries – proper planning is even more crucial. The tax rules are different for non-citizens and non-residents, and you need an estate plan that fully considers those rules, as well as the practical reality of different languages, different social customs and legal systems. If you fall into this category, keep in mind that:

    • Noncitizen spouses, even those who are resident in the U.S., are not eligible for the marital deduction for gift or estate tax purposes.
    • There are provisions that provide limited relief (like the expanded annual exclusion for noncitizen spouses, mentioned above), but you must follow the rules closely.
    • Other country or countries involved may impose a gift or estate/inheritance tax, perhaps at a higher rate.
    • U.S. tax laws and rules are designed to avoid double taxation, although they may not always work out perfectly. Don’t forget that there may be an applicable tax treaty that fills the gap.
    • Your executor will need to locate and communicate with your beneficiaries and that can be hard if they do not speak the same language. Making lists of key people and their contact information and note the location of important documents.
    • You can save time and hassle by locating professional advisors in both countries ahead of time.

For more information on U.S-Japan cross border estate planning in particular, you can see the 2013 article in the Trusts and Estates Magazine that I co-authored with a Japanese attorney and tax accountants.  Although the article focused on U.S.-Japan planning, many of the practical tips are relevant to people dealing with other countries too.

Although estate planning necessarily involves thinking about death and incapacity – not fun subjects – it does not have to be impossibly daunting. The key is to tackle it in a methodical and orderly manner. Just like the Japanese year-end cleaning (or spring cleaning, in the American tradition), if you take one thing at a time and follow a plan, you can get it done. And just like cleaning, you’ll feel so much better once it’s all done.

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About Us
Foster Garvey’s International practice group comprises a cross-disciplinary group of attorneys practicing in areas ranging from business transactions, immigration, maritime, government regulatory work, transportation and logistics and estate planning. The group members include bilingual and multicultural attorneys who are well-versed in handling these subject matters in a cross-border context. A number of attorneys have been actively practicing in the international arena since the early 1970s.
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