As an accounting associate, it is imperative that one can apply tax and accounting knowledge to help clients identify the most effective forms of investment and recommend the most appropriate business strategies for them. Plans proposed for the clients could help them save millions of dollars over time. The essay, therefore, seeks to analyze a client scenario for the organizers of Tai-Ga by providing appropriate factors in estate planning for the maximization of their tax benefits. The essay will also formulate a recommendation memorandum to the stakeholders.
Estate tax refers to a tax levied on an heirs' inherited portion in scenarios where part of the estate exceeds an exclusion limit put in place by the federal government. It is mostly imposed on assets left by owners to their heirs, and because it can be relatively high, it is important to help Tai-Ga organizers to carefully plan its estate since they may be intending to leave behind significant assets to their beneficiaries without incurring high sales taxes. Estate taxes imposed on an estate significantly reduce its value before it is distributed to the beneficiaries (Casner, 2016). There are several factors in estate planning that can help maximize the tax benefits of Tai-Ga’s shareholders and they are discussed herein. First is that the shareholders could opt for setting up an AB Trust, which divides into two after the death of one of the couples and also they may encourage their children to seek college and other advanced degrees thereby transferring the assets to an entity for purposes of their current and future education funding ( Graetz et al., 2015) . The idea could be much more tax efficient strategy compared to dying, which will trigger several tax events. Giving to charitable organizations is also another factor for maximizing tax benefits of the shareholder is through giving to charitable organizations while alive, which reduces the estate’s financial size since they are usually excluded from taxable estate thus lowering the estate tax bill ( Graetz et al., 2015) . Consequently, the individual shareholders will have a lower cost effective way of giving.
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Also, estate freezing is another way of maximizing the shareholder's tax benefits, and it involves shareholders locking in the current value and hence tax liability of his or her stake in the estate while attributing future growth's worth of the capital property to another individual (McNulty & McCouch, 2015). By this, the shareholders through the estate planner to estimate their potential tax liability as well as planning for the payment of income taxes. Lastly, life insurance can also serve to maximize Ta-Ga's shareholders' tax benefits since it can help them pay death taxes and other expenses as well as funding their retirement plans. If insurance proceeds available are sufficient, and policies are properly structured, the income tax resulting on the deemed dispositions of shareholders’ assets following their death can be paid without retreating to the sale of their assets. Critical to note is that gains from life insurance, which are received by the relevant beneficiaries at the insured's death are generally income tax-free.
After an individual’s death, his or her estate is heavily taxed before his heirs receive it ( Polasky, 2014) . For instance, a married couple with an estate valued at $3 million at the time of one of the partner's death, the surviving spouse is left with all the amount, which is untaxed due to the unlimited marital deduction, which applies to assets flowing from a deceased partner to the surviving one. Although, if the other partner dies and his or her estate exemption is put at $ 1 million, then the total taxable part of the estate will be $2 million implying that the $2 million will be taxed at a rate of 40% and the remainder transferred to the heirs. The Internal Revenue Service requires that estates with combined gross assets and prior taxable gifts exceeding $11.8 should file a federal estate tax return and pay the estate taxes as well, which implies that an estate with $11.8 million in combined assets would not be required to file an estate tax return. It would also be exempted from paying estate taxes ( Freeland, Lind & Stephens, 2018) .
Setting up an A-B Trust can help Ta-Ga's shareholders circumvent steep estate taxes, the married couples should set up an A-B Trust under their last will and testaments. Having an A-B Trust will not trigger estate taxes at the death of the first partner due to lifetime exclusion ( Freeland, Lind & Stephens, 2018) . After one of the partner's, the total sum of money, which is equal to the estate tax exemption during the year of death is placed in an irrevocable trust known as the bypass trust ( Graetz et al., 2015). The remaining part of the money is then transferred to a survivor’s trust, which the surviving partner will have total control over. The A-B Trust is essential to the shareholder of Tai-Ga because the estate tax imposed on the A Trust is postponed till after the surviving partner's death.
Adopting an A-B Trust will, therefore, be of benefit to Tai-Ga's shareholders because the federal tax exemption is transferable between spouses through a specification known as the probability of estate tax exemption ( Freeland, Lind & Stephens, 2018) . If one partner dies, the used part of his/her estate is transferable and can be included to the estate tax exemption of the surviving partner.
Conclusively, estate planning is an ongoing process, and thus it should be started at the earliest possible moment the business entity has a quantifiable asset base. As the business progresses, goals keep changing, and the estate plan should keep shifting in line with the objectives. Inadequate estate planning can cause undue financial burdens since the estate taxes can run to over 40% hence putting in place measures can help reduce the estate burden.
References
Casner, A. J. (2016). Estate planning (Vol. 1). Little, Brown.
Freeland, J. J., Lind, S. A., & Stephens, R. B. (2018). Fundamentals of Federal Income Taxation . Foundation Press.
Graetz, M., Schenk, D., Freeland, J., Lathrope, D., Lind, S., Stephens, R., & Keyes, K. (2015). Federal Income Taxation, Principles and Policies. Foundation Press/West Academic.
McNulty, J., & McCouch, G. (2015). Federal estate taxation . West Academic.
Polasky, A. N. (2014). Marital Deduction Formula Clauses in Estate Planning--Estate and Income Tax Considerations. Mich. L. Rev .
