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. It’s a
popular talking point, but what
does it really mean for those
planning their estates? Let’s take
a look at estate planning, taxes
and how it impacts most of us.

3.
ESTATE PLANNING TERMS
First, let’s 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 person’s 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 deceased’s property.
 Inheritance taxes are placed by the
state on the person receiving the
property. Inheritance taxes are
based on the beneficiary’s
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 don’t 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 LLC’s or FLP’s, 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, you’ll 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