<< Return to FAQs index

Tax Planning FAQs

We have provided the information below as general information. It is not legal advice because we do not know the specifics of your situation. It is prudent to get legal advice specific to your situation. Your use of this site does not create an attorney-client relationship with us. If you would like to speak with us about your situation, please call 540-342-0888 or send us an e-mail. Thank you for visiting our web site.

Q: Does Virginia have an inheritance tax and/or an estate tax?

A: Virginia does not have an inheritance tax. The Virginia Estate Tax was repealed for decedent's dying on or after July 1, 2007. A federal estate tax still exists.

Q: My wife and I have assets worth approximately $4,000,000. Do we need estate tax planning?

A: Yes. Currently, you and your wife can each pass assets worth $3,500,000 (including your adjusted taxable gifts during lifetime, which are limited to a tax free amount of $1,000,000) free from estate taxes. However, if your estate plan leaves all of your assets to each other, the survivor will have an estate worth $4,000,000 and only a $3,500,000 exemption. An estate plan designed to take advantage of the $3,500,000 exemption that each of you possess can be used to eliminate estate taxes on up to $7,000,000 in assets.

The analysis of this question is subject to change based on any proposals made by the new administration that was recently elected.

Q: How much of my assets can I give away during my lifetime without having to pay gift taxes?

A: You can currently give away $13,000 in assets to each individual to whom you wish to make a gift during the calendar year without the gifts being subject to the federal gift tax. Gifts to a single individual that, in total, exceed $13,000 in a single calendar year do have gift tax ramifications. You must file a federal gift tax return and allocate a portion of your $1,000,000 lifetime gift tax exemption to eliminate the tax on the amount of the gift that exceeds $13,000. The excess of the gift over $13,000 is called a "taxable gift." If you make taxable gifts in excess of $1,000,000 during your lifetime, you will have to pay a federal gift tax.

Q: I am not married and I have an estate worth approximately $3,700,000. What are some planning options that I may have to eliminate my estate tax exposure?

A: If you are comfortable that your level of assets will sustain you through out your life expectancy, you may wish to consider making lifetime gifts to family members, using your $13,000 annual gift tax exclusion. If you are charitably inclined, you may wish to make a lifetime or testamentary charitable gift to obtain a charitable deduction and lower the value of your estate below the current $3,500,000 estate tax exemption amount. Other options may also be available.

Q: I currently am not married and have an estate worth approximately $4,500,000. I am considering purchasing life insurance to provide cash to pay estate taxes at my death. What is the best arrangement for owning this life insurance?

A: Since you already have a taxable estate, you should not be the owner of this life insurance policy. If you are the owner or have other incidents of ownership in the policy, it will be included in your estate for estate tax purposes and compound your estate tax problem. You should create an irrevocable life insurance trust, fund the trust and allow the trustee to purchase and be the owner on a life insurance policy insuring your life. Using an irrevocable life insurance trust will keep the proceeds from being included in your estate for estate tax purposes. Creating and maintaining an irrevocable life insurance trust can be complex. There are many issues involved with creating the trust, purchasing the life insurance policy and maintaining the trust.

Q: I currently have a taxable estate and a significant portion of my assets are tied up in a single stock position that has a very low basis. I would like to diversify my assets, but don't want to take a large tax hit. What is the best way to handle this situation?

A: If you are charitably inclined, you may wish to consider a charitable remainder unitrust ("CRUT"). A portion of the stock position could be contributed to the CRUT, where it would be sold by the trustee and reinvested in a diversified manner. The trustee pays you annually a percentage of the assets for your lifetime or a term of years with the remainder going to charity. The funds you receive from the CRUT could be invested in an irrevocable life insurance trust that holds a life insurance policy on your life. At your death, the proceeds of the life insurance policy would be paid to your designated beneficiaries to replace the value of the stock position given to the CRUT. You would receive a income tax deduction for a gift to charity, based on the tax law at the time the trust is funded. At your death, you would receive an estate tax deduction.

Q: My husband passed away in 2008. Can I file joint federal and Virginia income tax returns for 2008? When are they due?

A: Please see the answer to a similar frequently asked question under the heading "Estate and Trust Administration."

Q: What is the filing threshold for the federal estate tax? Is an executor required to pay income tax on the income earned by an estate?

A: Please see the answer to a similar frequently asked question under the heading "Estate and Trust Administration."

<< Return to FAQs index