• An individual that was deemed to make a treaty election under Rev. Proc. 2014-55, and has other unreported foreign financial assets that is filing under the SDOP; the Canadian retirement plan will not be subject to the 5 percent penalty and an explanation should state that they are an "eligible individual" in the narrative statement of facts on Form 14653 or Form 14654.
• Same as above except that the individual has no other unreported financial assets; there is no need to report the accounts via the SDOP. Instead file any delinquent FBARs pursuant to the Delinquent FBAR submission procedures and any delinquent Forms 8938 with a reasonable cause statement. 
• Other situations in which the individual reported accrued income from the retirement plan on their income tax returns, whether they are an "eligible individual" or not, may require amended returns to be submitted through either the SDOP or just the normal channels.

By Ning Ding, CPA

In 2016, the estate/gift tax exemption has increased to $5.45 million for federal tax purpose. There are many factors to take into consideration to avoid unintended tax consequences and prepare for an orderly transfer of assets. Below are four tax-friendly reminders to consider while planning for your estate.

ALLOCATION OF ASSETS BETWEEN SPOUSES
With the new portability rules currently in place, most couples with estates below $10,900,000 feel pretty safe that they will not have to pay an estate tax at the second death and therefore the allocation of their assets are not important. Even though this may be true, it is still important to allocate assets between spouses for other reasons. One reason is if there is a second marriage, or if there is a possibility of a second marriage after the first death. By allocating assets, it will allow the deceased taxpayer to control the assets after their death while still providing for the surviving spouse during their life. Also, in order to obtain the portability and fully utilize the $10,900,000 of exemption at the second death, a form 706 needs to be filed at the first death and if not filed timely it could be detrimental at the second death where the additional portability amount is not available.

ESTATE PLANNING DOCUMENTS
Families that fall below the five million dollar threshold may suffer unintended consequences by believing they do not have to plan for their estate. Families need to be aware that taxes are only one aspect of estate planning. Planning for an orderly transfer of assets in the event of unforeseen circumstances is still a crucial component in the estate planning process. Some strategies to consider are including proper beneficiary designations on retirement accounts and insurance contracts, wills, power of attorney, health care directives and revocable trusts.

DOES MY STATE HAVE AN ESTATE TAX?
Even though the ceiling for the federal estate/gift tax exemption of $5,450,000 is high for most people, there are some states that apply different tax rates or exemption amounts. Although Michigan does not have an estate tax, states like New Jersey impose tax on estates worth more than $675,000. It is very important to consult with an attorney or your tax specialist for specific state laws and potential options to reduce state estate or inheritance taxes.

EVALUATE TIMING OF WEALTH TRANSFERS
This decision is crucial when strategizing for estate planning. Lifetime gifting can help to reduce the total estate by excluding the increase in value after the transfer and avoid potential estate taxes, but your beneficiaries will lose the step-up in basis at death. Transferring at death can allow the people who create the fortune to maintain control of the assets and benefit from the step up in basis of those appreciable assets at the time of the death, but the estate may be subjected to estate tax if the value of the estate reaches the threshold. Therefore, when to give is an important decision that needs careful planning.

Circumstances tend to vary between estates, therefore it is extremely important to consult with a qualified tax professional and legal advisor to discuss options and strategies to prepare for the future. For more information contact your tax representative at UHY LLP in Detroit 313 964 1040, Farmington Hills 248 355 1040 or Sterling Heights 586 254 1040, or visit us online at www.uhy-us.com.

For more information or questions on this topic, please contact your professional at UHY LLP in Detroit 313 964 1040, Farmington Hills 248 355 1040 or Sterling Heights 586 254 1040, or visit us on the web at www.uhy-us.com.