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Friday, July 22, 2011 Recent Press Coverage of Estate Planning (July 22, 2011)
Hani Sarji of Forbes notes that this is a great time to use gifts as an estate reduction strategy if you live in a state that has an estate tax threshold lower than the current federal estate tax threshold of $5 million per person ($10 million for a married couple). If you live in a state that has its own estate tax but no gift tax, like Vermont, then you can gift property during your life to reduce your estate value to less than the state estate tax exemption level, and still avoid gift taxes on the federal level. The current high gift exemption level extends only through 2012, so you need to plan ahead accordingly. See How to Cut State Death Taxes – Without Moving (July 13, 2011).
Jay Adkisson writes in Forbes about ten rules to keep in mind regarding asset protection. Most importantly, there are many strategies available if you start planning before a claim arises, but few that work after a claim or liability arises. And engaging in asset protection after a claim is filed is likely to make matters worse. Other rules include pairing asset protection with insurance, ensuring personal assets are not placed in business entities, and avoiding asset protection plans that are so complex they are hard to clearly explain. See Ten Rules for Asset Protection Planning (July 13, 2011).
Ashlea Ebeling of Forbes discusses ways to avoid a protracted battle over your estate. Advice includes treating siblings equally, making a list of specific items that should go to named heirs, keeping track of loans and advances, including a “no contest” clause, and spelling out clearly if you intend to disinherit someone. See 10 Ways to Lawsuit-Proof Your Estate (July 13, 2011).
Deborah L. Jacobs of Forbes reviews the unusually difficult challenges facing executors of people who died in 2010, a year when there was the option to avoid the federal estate tax (but pay capital gains taxes) or apply the estate tax law as it exists in 2011 with its $5 million exemption level. Issues include locating purchase records to determine cost basis for many assets, coping with new paperwork and forms issued by the IRS for this unusual year, and meeting the fiduciary obligations of impartiality when one of several available strategies benefits one group over another. See New Heirs Face Confusing Tax Choice (July 13, 2011).
Janet Novack of Forbes writes about ways to pass on frequent flyer rewards before or after you die. Each program has its own set of rules, but several allow a parent or grandparent to use their miles to purchase tickets for someone else. Also, ensure someone has your list of accounts, passwords and usernames, because some plans don’t allow transfer of points to an heir, but will allow someone to log on and redeem points after your death. See How to Pass On Your Frequent Flyer Miles (July 13, 2011). Wednesday, May 18, 2011 NEET Tips
NEET Tips answers questions posed by visitors to the NEET website
Do payments for education avoid generation skipping transfer taxes?
Yes, provided the payment for tuition is a qualified transfer falling under Internal Revenue Code Section 2503(e). Qualifying tuition payments are not treated as a transfer of property by gift, nor are they subject to the generation skipping transfer tax (GST).
GST exemptions apply to the annual gift tax exclusion (currently $13,000 per year) and direct payments for qualifying tuition or medical expenses under IRC 2503(e) because the GST rate of tax depends on the definition of the exclusion ratio. The exclusion ratio for direct skips that are nontaxable gifts is set equal to zero, therefore there is no tax on these transfers.
For more information on education payments, see the NEET article:
Unlimited Educational and Medical Payments Allowed Under Gift Tax Exemption Friday, May 06, 2011 Recent Press Coverage of Estate Planning (May 6, 2011)
Arden Dale of the Wall Street Journal reports that fewer people may owe federal estate taxes because of the high federal exemption level, but an increasing number may be paying state estate taxes. Some states, such as Connecticut, are attempting to lower their estate tax threshold to collect more in estate taxes. See Some States Push for More Estate Taxes (Apr. 29, 2011).
Kelly Greene of the Wall Street Journal writes about ways to use the increased gift tax exemption to pay the education expenses of children and grandchildren. Some grandparents are setting aside money using the current high gift tax exemption to create common trusts for infants and toddlers, whereby grandchildren can in the future access the trust for college costs. See Paying Grandkids’ College Bill (Apr. 30, 2011). Friday, April 08, 2011 Recent Press Coverage of Estate Planning (April 8, 2011)
Bill Bischoff of SmartMoney contends that even though the federal estate tax exemption has risen, people still need an estate plan to avoid having their assets pass according to their state’s default intestate rules. The article provides a quick overview of wills, living trusts and other estate planning options. See Why Most People Need An Estate Plan (Mar. 22, 2011)
Ashlea Ebeling of Forbes writes about how to handle an inheritance. There’s an estimated $8.4 trillion that will pass to baby boomers, an average of nearly $300,000 per inheriting household, and boomers are finding many different ways to use the money. See The Inheritors (Apr. 11, 2011).
Susan Hirshman writes in Forbes about wives that should be acting now to protect their interests. She notes that some estate plans allocate up to the federal estate tax threshold to one’s children, with the surviving spouse receiving the rest. With a high exemption level of $5 million, that could leave the wife with nothing. See Why Women Need An Estate Plan (Mar. 23, 2011).
Deborah L. Jacobs of Forbes discusses the new portability law that allows a surviving spouse to use the decedent spouse’s unused estate tax exemption amount, and argues that even though this provision is set to expire at the end of 2012, it could stick around beyond that, so it behooves you to understand how it works and prepare for it. See Estate Planning for Two (Apr. 1, 2011).
Linda Covella of the Santa Cruz Patch discusses the differences between wills and trusts, offers pros and cons for each approach, and reviews the role of an attorney in the process. See Wills and Trusts: Which Will You Trust for Your Estate Planning? (Apr. 3, 2011).
Deborah L. Jacobs of Forbes provides a short overview of the gift tax law, gift tax returns, and offers some Q&A regarding whether a gift tax return should accompany your income tax return this April. See Time to File That Gift Tax Return (Apr. 1, 2011). Wednesday, March 02, 2011 NEET Tips
NEET Tips answers questions posed online to the NEET website
What are some creative ways to get around the gift tax?
With the reunification of the estate and gift tax rates, an individual may, under current law, give $5 million in lifetime gifts (a married couple may give $10 million) before gift taxes become due. Few people need to exceed that amount, but if you see a need to give more, or you don’t want to reduce your estate tax exemption amount, here are some opportunities in the existing gift tax laws that allow substantial tax-free gift giving to family members, friends and charitable organizations.
First, consider the annual gift tax exclusion amount of $13,000 per person, to any number of people you choose. Couples may give $26,000, and if a couple is making gifts to a child and spouse, the amount doubles to $52,000 per year.
Second, consider the gift tax exclusion for education and medical payments made directly to the provider. You can give an unlimited amount of qualified payments for tuition and medical expenses, including medical insurance.
Third, consider gifts to public charities or private foundations.
Fourth, if married, consider making gifts to your spouse. You might consider this if your property is separately owned, and one spouse’s net worth is below the Vermont or federal estate tax exemption amount, while the other spouse’s exceeds the state or federal exemption amount and thus would be subject to tax if they were the surviving spouse.
For more information on making gifts, see the NEET articles:
Giving Gifts
Creative Ways to Pay for Education Friday, February 18, 2011 Press Coverage of Estate Planning this Week (February 18, 2011)
Carla Fried of the New York Times reviews how the new estate tax laws affect lifetime gifts. Because federal gift taxes are now closely aligned with federal estate taxes, many parents will find that it makes sense to give gifts during their lifetime rather than provide an inheritance after their death. This is particularly relevant during the next two years when the gift exemption is relatively high. See Estate and Gift Rules: Some Clarity for Now (Feb. 12, 2011).
Ashlea Ebeling of Forbes writes about states that have a separate estate or inheritance tax aside from the federal estate tax. The situation is constantly in flux, with states adopting or amending their estate tax laws every year. If you are planning on taking estate taxes into consideration when planning on where to retire, the advice is “prepare for the worst, and hope for the best.” See More States Want to Tax Your Estate (Feb. 15, 2011).
Christine Benz of Morningstar advises on steps to take regarding your IRAs in the context of estate planning. Recommendations include getting professional advice when naming beneficiaries, considering a charity as a beneficiary, and contemplating a conversion from a traditional IRA to a Roth IRA if you don’t expect to need the money during your lifetime. See Dos and Don’ts for Leaving IRA Assets to Your Loved Ones (Feb. 17, 2011). Monday, January 24, 2011 NEET Tips
NEET Tips answers questions posed online to the NEET website
What is Gift Splitting?
When a married person makes a gift to a person other than his or her spouse, both spouses may elect to treat the gift as though it had been made one-half by each of them. This allows a donor to make a gift of double the annual exclusion amount ($13,000 in 2011), if their spouse consents.
There are some rules. First, both spouses must be a citizen or resident of the United States. Second, the couple must be married at the time of the gift and the consenting spouse may not remarry during the remainder of the calendar year. Third, an election to split a gift applies to all gifts during the calendar year when the gift was made. In other words, spouses may not pick and choose which gifts made during the year will be treated as split gifts and which will not. The spouse’s consent to splitting gifts is made on a gift tax return that is due by April 15 of the year following the year in which the gift was made. Thursday, January 20, 2011 NEET Tips
NEET Tips answers questions posed online to the NEET website
Is the Gift Tax different from the Estate Tax?
Yes. The gift tax is separate, but recently reunited with the estate tax under the provisions of the Tax Relief Act of 2010. Unlike the estate tax, which is applied after a person's death, the gift tax is levied during a person's life. The person making the gift is known as the donor or transferor, and is responsible for paying the gift tax. Gift tax returns are due by April 15 of the year following the calendar year when the gift was made.
Gift tax rules are more complicated than most people realize. To arrive at the gift tax, you take the value of the gift, subtract the annual exclusion amount if not already used for the recipient, subtract amounts passing to a spouse or charitable organization, then add in any applicable generation skipping transfer taxes payable, which results in the taxable gifts for the relevant year. The gift tax is cumulative, so the amount of gifts made in prior years is added to the current year gifts to determine the total taxable gifts. Then, figure the tax on the total taxable gifts, and the tax on the current year gifts; subtract the latter from the former, and you arrive at the gift tax for the current year. Finally, subtract the donor’s unified credit, provided the donor has some available, and you arrive at the gift tax due for that year.
There are important exceptions to the gift tax laws, including payments made directly to qualifying educational and medical institutions. Whenever making sizable gifts of more than $13,000 to any individual, consult an attorney or a CPA to see how best to minimize gift taxes.
For more information on gift taxes, see the article:
Giving Gifts Thursday, December 09, 2010 NEET Tips
NEET Tips answers questions posed online to the NEET website.
Can a Grandparent pay for private school?
Grandparents may pay for the education expenses of a grandchild without any adverse tax consequences, provided the payments are made directly to the school and are considered by the IRS to be a qualifying education expense. Qualifying educational expenses include tuition for full-time or part-time students, but do not include payments for books, supplies, dormitory or boarding fees, or similar costs not directly related to tuition.
See the article: Unlimited Educational and Medical Payments Allowed Under Gift Tax Exemption
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Welcome to NorthEast Estates and Trusts, PLLC (NEET). NEET assists clients with Estate Planning, Probate and Estate Administration, Special Needs Planning and Advanced Estate Planning matters in Shelburne, Vermont as well as Charlotte, South Burlington, Burlington), Hinesburg, Essex, Essex Junction, Colchester, Winooski , Cambridge, Huntington, Richmond, Williston, Jericho , Underhill , Underhill Center and Fairfax. NEET also serves clients in Chittenden County, Addison County, Washington County, Lamoille County, Franklin County and Grand Isle County.
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