Every year the Internal Revenue Service publishes new rates and tables for a variety of tax exemptions. Here are the important ones that relate to Gift and Estate Taxes:
Starting on January 1, 2009...
1) The Annual Gift Tax Exclusion will be $13,000. The old limit was $12,000. This means a person can give any other person at least $13,000 before it is subject to the federal gift tax. I won't go into the details about how and when it will qualify - just realize that as long as it is an outright gift, it will usually qualify. Also, a husband and wife may now split a $26,000 gift for tax purposes before there is a gift tax.
2) The Annual Gift Tax Exclusion for Gifts to Non-Citizen Spouses will be $133,000. The old limit was $128,000. This is the maximum amount a person may transfer to a non-citizen spouse before the gift is subject to a gift tax. In order for US law to apply, we will usually be talking about a gift being made to a permanent resident alien spouse. One place where this gets triggered unexpectedly by many is retitling of real estate - so be careful with changing ownership before giving this some thought.
3) The Federal Estate Tax Exemption will be $3,500,000. We've talked about this before, so it should not be a surprise to anyone that the estate tax exemption amount is going up from $2,000,000 up to $3,500,000. The real question will be what happens in 2010 under a Democratic Congress and President. All rumors that I am hearing at this point lead me to believe that the $3,500,000 will stay, but be indexed for inflation.
Source: IRS Rev.Proc. 2008-66, 2008-45 IRB1
I.R.C. Section 2010
Tuesday, December 23, 2008
Wednesday, October 22, 2008
Why Should I Hire an Estate Planning Attorney?
The short answer is: control. Proper estate planning is essential to controlling how much of your estate you pass on, to whom you pass it on, and when it is passed on. Back in March, I listed the Top 10 Reasons to Have a Will. However, not only should you have a Will, but in most instances it should be drafted by a qualified estate planning attorney.
“Do it yourself” will kits seem easy enough, but they can’t advise you. If you have children and will be naming guardians or setting up trusts, you need the advice of someone who knows the intricacies of estate planning laws. While providing for your children's protection, you need to consider how your money will be transferred to them. Who will control the money until the kids are old enough to take care of it themselves? Will they get staggered amounts as they hit certain milestone birthdays, or get it all at once? What if one of your children is a spendthrift (i.e. a reckless spender)? In this day and age, the issue of blended families can make drafting a will for your loved ones even more complicated. However, an estate planning attorney can not only draft a Will to provide for your wishes, but can also serve as a counselor, suggesting customized trusts that can be used to provide for your spouse and children on various levels. An estate planning attorney can even set up trusts that direct assets to someone other than family in a way that ensures your family has access to the money when that non-family member no longer needs it.
Moreover, tax and trust planning go hand in hand and should be considered simultaneously. In order to maximize how much of your estate stays intact and is passed to your family, you need to minimize the amount paid to the government and maximize the investments held in trust. This requires a considerable amount of coordination among your assets. In order for the trusts to work as intended, all assets must be accounted for, both at the time the trust is established and moving forward. I’ve written before about tax exemptions, but the short version is that if your estate is properly planned, you (and your heirs) can potentially avoid tax liability altogether.
So - pardon the pun, but if there is anything even remotely complicated about your plan, then a do it yourself Will will not do. Finally, this area has become some complex due to the ever changing tax laws, you really do want to have someone who does this work frequently, otherwise you really are just paying an attorney to fill out a Will kit for you.
Written by: Nancy McMillin & Kevin Pollock
“Do it yourself” will kits seem easy enough, but they can’t advise you. If you have children and will be naming guardians or setting up trusts, you need the advice of someone who knows the intricacies of estate planning laws. While providing for your children's protection, you need to consider how your money will be transferred to them. Who will control the money until the kids are old enough to take care of it themselves? Will they get staggered amounts as they hit certain milestone birthdays, or get it all at once? What if one of your children is a spendthrift (i.e. a reckless spender)? In this day and age, the issue of blended families can make drafting a will for your loved ones even more complicated. However, an estate planning attorney can not only draft a Will to provide for your wishes, but can also serve as a counselor, suggesting customized trusts that can be used to provide for your spouse and children on various levels. An estate planning attorney can even set up trusts that direct assets to someone other than family in a way that ensures your family has access to the money when that non-family member no longer needs it.
Moreover, tax and trust planning go hand in hand and should be considered simultaneously. In order to maximize how much of your estate stays intact and is passed to your family, you need to minimize the amount paid to the government and maximize the investments held in trust. This requires a considerable amount of coordination among your assets. In order for the trusts to work as intended, all assets must be accounted for, both at the time the trust is established and moving forward. I’ve written before about tax exemptions, but the short version is that if your estate is properly planned, you (and your heirs) can potentially avoid tax liability altogether.
So - pardon the pun, but if there is anything even remotely complicated about your plan, then a do it yourself Will will not do. Finally, this area has become some complex due to the ever changing tax laws, you really do want to have someone who does this work frequently, otherwise you really are just paying an attorney to fill out a Will kit for you.
Written by: Nancy McMillin & Kevin Pollock
Wednesday, September 17, 2008
Should I Tell My Family About What's In My Will?
I must say, I get this question quite a bit. Accordingly, I was very happy to read this article in the New York Times discussing the benefits of an open and honest dialogue with your heirs about the inheritance that they should expect.
Many older clients feel that their kids should learn about their inheritance the same way that they did - only after the surviving parent died. There are several good arguments why clients tell me that they don't want their children to know about their inheritance, with sloth being the biggest one. They want their children to work hard and not rely on getting a large sum of money.
I, however, must generally agree with the article written by David Cay Johnston. I have always felt that, except in limited circumstances, it is usually better to advise your family of what they should expect. I have seen too many estates go into litigation because the elder parents did not properly advise their heirs of their testamentary plans. This is especially true when their is an unequal distribution or if the decedent had been married more than once.
Now, this does not mean that you need to give all the details, and certainly many of the details should be age appropriate. For example, I would tend to advise against telling a 19 year old that he will be inheriting a million dollars, but it would be OK to tell him that his disabled sister or his step mother will have special trusts set up for them. On the other hand, once a client has children over the age of 45, unless the children have medical or psychological problems, there is usually very little reason to keep this kind of information secret.
As with many things in life, there is a sliding scale of what is appropriate and what needs to be mentioned to the family. At a minimum, I request that parents who do not leave their money in a traditional fashion write a letter explaining why they did what they did. I usually do not like to put the reasons themselves in a Will as that is a public document and someone may get offended.
So what do I tell clients who are still worried their children will become lazy if they inherit a lot of money? I tell them to advise their children that they can always change their Will to give the money to charity if the children do not earn their inheritance. Financial incentive can be a power motivating force - and that they can consider it a bonus for a "job" well done. (Note, If a client has multiple children, I do not recommend that a client say he or she will give all their money to only one kid. It is better to say you will give that undeserving child's share to charity or the undeserving child's children, otherwise the anger that the disinherited child feels will be directed at his or her sibling.)
Many older clients feel that their kids should learn about their inheritance the same way that they did - only after the surviving parent died. There are several good arguments why clients tell me that they don't want their children to know about their inheritance, with sloth being the biggest one. They want their children to work hard and not rely on getting a large sum of money.
I, however, must generally agree with the article written by David Cay Johnston. I have always felt that, except in limited circumstances, it is usually better to advise your family of what they should expect. I have seen too many estates go into litigation because the elder parents did not properly advise their heirs of their testamentary plans. This is especially true when their is an unequal distribution or if the decedent had been married more than once.
Now, this does not mean that you need to give all the details, and certainly many of the details should be age appropriate. For example, I would tend to advise against telling a 19 year old that he will be inheriting a million dollars, but it would be OK to tell him that his disabled sister or his step mother will have special trusts set up for them. On the other hand, once a client has children over the age of 45, unless the children have medical or psychological problems, there is usually very little reason to keep this kind of information secret.
As with many things in life, there is a sliding scale of what is appropriate and what needs to be mentioned to the family. At a minimum, I request that parents who do not leave their money in a traditional fashion write a letter explaining why they did what they did. I usually do not like to put the reasons themselves in a Will as that is a public document and someone may get offended.
So what do I tell clients who are still worried their children will become lazy if they inherit a lot of money? I tell them to advise their children that they can always change their Will to give the money to charity if the children do not earn their inheritance. Financial incentive can be a power motivating force - and that they can consider it a bonus for a "job" well done. (Note, If a client has multiple children, I do not recommend that a client say he or she will give all their money to only one kid. It is better to say you will give that undeserving child's share to charity or the undeserving child's children, otherwise the anger that the disinherited child feels will be directed at his or her sibling.)
Tuesday, June 17, 2008
Estate Planning for Americans with Assets in India
New Jersey is a fairly diverse state, and I find that more and more of my clients are of Indian heritage. So, as with many of the items I write on this blog, I thought I would share some of the advice that I regularly give clients on this topic:
1) India does not have an estate or an inheritance tax;
2) There is no treaty with respect to the US and India on Estate and Inheritance Taxes;
3) As a US citizen, all of your assets, worldwide, will be subject to an estate tax;
4) If you are also a NJ domiciliary; all of your assets in NJ will be subject to both NJ Estate and Inheritance taxes. Note, New Jersey also has the right to tax some worldwide assets for estate and inheritance tax purposes);
5) There IS a treaty between the US and India with respect to income taxes (see: http://www.unclefed.com/ForTaxProfs/Treaties/india.pdf) Tax returns need to be coordinated and you will receive a deduction for income taxes paid in India. This may still result in higher taxes as you must report income on worldwide profits.
6) You can do planning to minimize the estate tax burden.
1) India does not have an estate or an inheritance tax;
2) There is no treaty with respect to the US and India on Estate and Inheritance Taxes;
3) As a US citizen, all of your assets, worldwide, will be subject to an estate tax;
4) If you are also a NJ domiciliary; all of your assets in NJ will be subject to both NJ Estate and Inheritance taxes. Note, New Jersey also has the right to tax some worldwide assets for estate and inheritance tax purposes);
5) There IS a treaty between the US and India with respect to income taxes (see: http://www.unclefed.com/ForTaxProfs/Treaties/india.pdf) Tax returns need to be coordinated and you will receive a deduction for income taxes paid in India. This may still result in higher taxes as you must report income on worldwide profits.
6) You can do planning to minimize the estate tax burden.
Monday, June 9, 2008
U.S. Citizens Can Vote Abroad
All U.S. Citizens can vote in a general election, regardless of where they live.
YES, you can vote in the
Questions regarding the above which cannot be answered locally may be referred to the
Director, Federal Voting Assistance Program
Department of Defense
1155 Defense Pentagon
Washington DC 20301-1155
You may also reach the FVAP via email at vote@fvap.ncr.gov, telephone (703) 588-1584, DSN 425-1584, toll free at 1-800-438-8683 or from 64 countries at www.fvap.gov/services/tollfree.html.
Wednesday, June 4, 2008
Federal Estate Tax Reform - Not Happening Any Time Soon
For a while now, I have been telling my clients (and really anyone who asked) that I did not think there was going to be any major change in the Federal Estate Tax regime until after the presidential election. A recent Wall Street Journal article that I read is in line with this thinking. For the complete article written by Tom Herman, goto: What Congress Is Likely To Do to Your Tax Bill.
Under the current federal estate tax laws, a person is allowed to pass on up to $2,000,000 to anyone they choose plus an unlimited amount to a surviving spouse (as long as he or she is a citizen). In 2009, this "exemption amount" is supposed to go up to $3,500,000 per person. In 2010, the federal estate tax is theoretically supposed to disappear, and in 2011, it goes back to the pre-Bush era exemption amount of $1,000,000.
In all likelihood, no one in their right mind will support any exemption amount of less than $2,000,000. In my personal opinion, the exemption amount will settle somewhere between $3,500,000 and $5,000,000 for the years 2010 forward.
Under the current federal estate tax laws, a person is allowed to pass on up to $2,000,000 to anyone they choose plus an unlimited amount to a surviving spouse (as long as he or she is a citizen). In 2009, this "exemption amount" is supposed to go up to $3,500,000 per person. In 2010, the federal estate tax is theoretically supposed to disappear, and in 2011, it goes back to the pre-Bush era exemption amount of $1,000,000.
In all likelihood, no one in their right mind will support any exemption amount of less than $2,000,000. In my personal opinion, the exemption amount will settle somewhere between $3,500,000 and $5,000,000 for the years 2010 forward.
Wednesday, May 7, 2008
Thoughts on Portability of Estate Tax Exemption
Currently the House and the Senate are mulling a proposal to allow married couples to transfer their estate tax exemption amount to a surviving spouse on death. Under the current law, it is a use it or lose it approach.
To give an example of what this would mean, let's take a couple with $4,000,000 worth of assets. The Husband has $3 Million in his name and the wife has $1 Million in her name. Under the current law, it is possible that this family's heirs could be taxed up to $900,000 in federal estate taxes. How you ask?
So how would portability of an estate tax exemption affect this? Well, in each of the above scenarios, there would be ZERO tax. The proposals being bandied about would allow a spouse to transfer his or her exemption amount to a surviving spouse. So in scenarios one and two above, rather than the surviving spouse having an exemption amount of only $2,000,000, he or she would be entitled to an exemption amount of $4,000,000. Generally, this fits in line with the current thinking of most tax provisions in that the government wishes to treat a husband and wife as a single unit.
By and large, there is not much downside to this idea for people. In most proposals, the only thing one must do to take advantage of this is to file an attachment to a person's estate tax return or their final income tax return. The people who would benefit most from this proposal would be those with large assets that they cannot transfer to a spouse (e.g. people who own large retirement accounts).
My one word of caution would be that this could lull people into a false sense of security regarding their estate planning. I know that if people are not worried about taxes, they may be less inclined to get the proper documentation in place. This would be particularly worrisome in the event of 2nd marriage situations where the children of a first marriage could potentially be cut out entirely.
A final note on the status of this legislation is that it has passed the House and is currently stalled in the Senate.
To give an example of what this would mean, let's take a couple with $4,000,000 worth of assets. The Husband has $3 Million in his name and the wife has $1 Million in her name. Under the current law, it is possible that this family's heirs could be taxed up to $900,000 in federal estate taxes. How you ask?
- Scenario 1. Regardless of whether Husband or Wife dies first, if they have a Will leaving everything to the surviving spouse before it goes to the children (an "I Love You Will"), then when the second spouse dies there will be a $900,000 tax. This is because the surviving spouse dies with assets worth $4,000,000 and an exemption of only $2,000,000. This assumes not increase in the value of the assets and the fact that the ederal estate tax rate stays at its current rate of 45%.
- Scenario 2. If Wife dies first and leaves the $1 Million to their children (or in a special trust for Husband), then on the subsequent death of Husband, there will be an estate tax of $450,000. This is because Husband would die with assets worth $3,000,000 and an exemption of only $2,000,000. Same assumptions as above.
- Scenario 3. This couple hires an intelligent estate planning attorney and the attorney helps them retitle their assets so that they each own $2,000,000. The attorney then sets up a special trust for the benefit of the surviving spouse so that he or she has access to all $4,000,000 ($2 Million of their own money and $2 Million in trust). However, this special structure makes full use of each spouse's estate tax exemptions - so that regardless of who dies first, there is no estate tax due and owing at the death of the second spouse.
So how would portability of an estate tax exemption affect this? Well, in each of the above scenarios, there would be ZERO tax. The proposals being bandied about would allow a spouse to transfer his or her exemption amount to a surviving spouse. So in scenarios one and two above, rather than the surviving spouse having an exemption amount of only $2,000,000, he or she would be entitled to an exemption amount of $4,000,000. Generally, this fits in line with the current thinking of most tax provisions in that the government wishes to treat a husband and wife as a single unit.
By and large, there is not much downside to this idea for people. In most proposals, the only thing one must do to take advantage of this is to file an attachment to a person's estate tax return or their final income tax return. The people who would benefit most from this proposal would be those with large assets that they cannot transfer to a spouse (e.g. people who own large retirement accounts).
My one word of caution would be that this could lull people into a false sense of security regarding their estate planning. I know that if people are not worried about taxes, they may be less inclined to get the proper documentation in place. This would be particularly worrisome in the event of 2nd marriage situations where the children of a first marriage could potentially be cut out entirely.
A final note on the status of this legislation is that it has passed the House and is currently stalled in the Senate.
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