With $5 Million Gift Tax Exclusion About to Expire, Is Now the Time to Give To Your Children or Grandchildren?
October 6, 2012
When legislation in 2010 raised the lifetime gift tax exclusion amount from $1 million to $5 million many wealthy families rejoiced, expecting that they would now be able to give large gifts to children or grandchildren and be able to save millions in taxes at the same time. But for all the rejoicing, the unsteady economy has made many people cautious, and has parents and grandparents thinking twice before giving away wealth that they may need themselves in later years.
According to this article in Bloomberg Business Week, however, the time has come for families to take a careful look at their finances and decide if they want to take advantage of the $5 Million gift tax exclusion before it expires. “Legislation enacted in 2010, which raised the lifetime gift-tax exclusion to $5 million from $1 million for each person starting last year, is set to expire. For 2012, the inflation- adjusted figure is $5.12 million for each person. It will drop to $1 million on Jan. 1 unless Congress acts.”
Parents who want to take advantage of the gift tax exclusion, but who worry that their children may not yet be ready to handle such a large financial gift, do have options. As the article points out, “Many [families] are setting up irrevocable trusts for children or grandchildren and transferring assets such as second homes that have the potential to appreciate.” This not only allows the assets to appreciate, but also allows parents and grandparents to breathe easy while young children or grandchildren have time to mature before receiving a gift or inheritance.
If you think your family may benefit from taking advantage of the gift tax exclusion before the end of the year, the time to act is now.
The Presidential Campaign & The Estate Tax
August 5, 2012
Curiosity and excitement are always to be expected in an election year—especially curiosity about taxes. We all know that each presidential candidate has very different philosophies about where the tax burden lies, how much should be paid, and by whom; but all most of us really want to know is how the implementation of each philosophy might affect us personally.
CNN Money recently published an article which attempts to explain just this: each candidate’s position on various tax policies and how it might carry over to our own wallets. The entire article is very informative, but of course the section that will be of most interest to our office and our clients is what the candidates have to say about the Estate tax. Here’s the scoop:
Estate tax: Until the end of this year, estates valued at more than $5.12 million are subject to an estate tax up to a top rate of 35%. Unless Congress acts to change this before January 1, 2013, the exemption from estate tax will then drop to $1 million and be subject to a top rate of 55%.
“Obama: Would reinstate the estate tax at 2009 levels — meaning estates worth more than $3.5 million would be subject to the tax and face a top rate of 45%.
“Romney: Would repeal the estate tax but preserve the gift tax rate at 35%.”
The thing to keep in mind when reading this is that the tax cuts from a few years ago are set to expire at the end of this year. This means that no matter who gets elected, estate tax laws will likely be changing on January 1st, 2013. As of January 1, everyone should probably review/update their estate plan, especially if you believe you may have an estate large enough to be subject to the estate tax.
Supreme Court’s Ruling on Health Care Reform May Help Seniors
July 6, 2012
The recent Supreme Court ruling of the constitutionality of the new health care reforms has many seniors breathing a sigh of relief. The ruling has ensured that, at least for the time being, senior citizens will continue to receive their currently existing benefits from programs such as Medicaid and Medicare; but the ruling also paves the way for changes—some good and some not so good—in the way various home-based and long term care services are paid for and provided.
This article in Forbes explains some of the ways that the ruling on the Affordable Care Act will impact senior citizens or adults with disabilities:
According to the article, Medicaid (called Medi-Cal in California) “currently funds nearly half of all paid long-term care services.” This current coverage will continue under the 2010 health law, but states can refuse to provide new coverage to individuals if they choose.
The Medicare program is currently under some considerable financial strain, and the Affordable Care Act “includes a small increase in the payroll tax that is aimed at increasing revenues for Medicare.” This should be a great help to the program, and a relief to seniors who receive benefits from Medicare.
For seniors and adults who require long-term care services and have been frustrated by numerous roadblocks to getting that care at home instead of in a nursing facility, good news is on the horizon; the ACA “includes important new incentives for states to expand Medicaid long-term care services for people living at home.” However, it remains to be seen whether the states will accept these incentives and expand coverage. As of this writing, Republican Governors in a number of states have announced that they do NOT intend to accept the incentives and expand coverage. We find such positions to be unfortunate for the many seniors and uninsured persons who would thereby lose the opportunity for health care coverage.
And finally, the law is giving more attention to seniors and adults with chronic and long-term illnesses. The ACA “creates a new office to coordinate the health and long-term care of people who receive both Medicare and Medicaid. . . It also includes important incentives to encourage hospitals, nursing homes, doctors, and other providers to work together to improve care for people with chronic disease.”
Republican Primary Inspires Talk of Trusts
February 18, 2012
If you follow current events at all it is impossible to ignore the fact that we are now in the thick of the Republican primary race—and that the Presidential election will not be far behind. With the political machine in full swing there have been quite a few news stories about the candidates’ financial backgrounds, and more than a little talk of “blind trusts.”
Many of our readers will already know that a blind trust is a vehicle which holds the wealth of a candidate (or a politician serving in office) in an effort to avoid any conflicts of interest. We thought this might be a good opportunity, however, to discuss trusts in general: Which trusts are out there, what are the differences between them, and what purposes do they serve?
Revocable Trust: A revocable trust is one of the most commonly used trusts because it is able to be revoked or changed so long as the grantor (the person who created the trust) is still living. There are many other trusts that fall under the category of “revocable trust”, including a pet trust (which addresses the physical and financial care of your pets), an education trust (which provides for your child’s educational expenses), and many more.
Irrevocable Trust: An irrevocable trust, logically, is one which cannot be revoked or changed after it has been signed. The irrevocability is what makes these trusts useful for tax planning and asset protection. Some types of trusts which fall under the category of “irrevocable trust” include life insurance trusts (which save the beneficiary on the policy from paying exorbitant estate taxes), spendthrift trusts (which reduce the beneficiaries’ estate taxes and protect trust assets from creditors’ claims), and more. It is important to note that any revocable trust becomes irrevocable upon the death of the grantor.
Charitable Trust: A charitable trust is one in which at least one of the beneficiaries is a charity or non-profit. These trusts allow the grantor to claim a portion of their contribution as a charitable deduction under income tax laws. A charitable trust can be either revocable or irrevocable to begin with, but if distributions will be made during the grantor’s lifetime the trust must be irrevocable.
Special Needs Trust: Sometimes also called a “Supplemental Needs Trust”, is a trust created for the benefit of a person receiving government benefits—this usually includes someone with a physical or mental handicap—and its purpose is to allow outside sources to provide the beneficiary with supplemental funds without endangering their right to receive government benefits. A special needs trust can be either revocable or irrevocable, but usually includes a clause instructing that the trust be dissolved if its existence disqualifies the beneficiary for government benefits.
We have only discussed some of the most commonly used trusts here, but there are many, many different kinds of trust which can be valuable for estate planning or asset protection.
Take Advantage of Tax Deductions Before Year’s End
December 23, 2011
As 2011 draws to a close just about everybody has their minds on vacation, travel, and gift-buying, so we just wanted to take a moment to remind all of our readers to take advantage of your tax deductions and allowances before the year is over. These may include sending a check to your favorite charity, giving a generous cash gift to children or grandchildren, or selling securities that have lost money this year.
This isn’t all you can do to wrap up your 2011 tax package. This article in the New York Times explains that the next two years of tax policy are likely to be a bit rocky, and that “beyond the usual recommendations… you should use this year to get your affairs in order for what promises to be an uncertain two years of tax policy.”
If you’re not sure which deductions might apply to you, our office (along with the article mentioned above) has come up with a list of tax breaks to consider:
1. Charitable gifts to most non-profit organizations are tax deductible; and while you can’t deduct any time you spend volunteering, you can deduct any out-of-pocket expenses incurred while volunteering.
2. You can give monetary gifts of up to $13,000 to as many individuals as you would like without incurring the gift tax.
3. The 30% energy tax credits of 2010 expired at the end of last year, but new (albeit lower) credits were passed for 2011. Check the energy star website for information if you made any energy-efficient improvements to your home this year.
4. If you are over 70½ you are currently allowed “to directly donate the required minimum withdrawal from [your] retirement account to charity.” (This is something that may disappear with new tax laws in 2012.)
5. Teachers are allowed to deduct up to $250 spent on classroom expenses.
6. A significant tax loophole set to end this year is one that “allows people whose marginal tax bracket is under 15 percent to pay no capital gains tax when selling securities held for more than a year.”
These are only a few of the tax strategies you may want to consider before the end of the year. For more tax-saving strategies please talk to your financial advisor.
The Gift of an Estate Plan May Be The Perfect Holiday Gift
December 3, 2011
The holiday season is upon us, and as others rush about the malls and the internet looking for gifts, we can recommend a unique, useful and memorable gift that will be perfect for any loved one: An Estate Plan!
Before you roll your eyes at the idea, consider this: An estate plan is something every person needs, whether it’s your single younger nephew, your older sister with her two young children, or your retired, aging parents. Furthermore, although everyone needs an estate plan, many people (wrongly) consider it a luxury, and put off creating one—often until it’s too late.
You may be thinking, No, an estate plan is too personal (too expensive, too morbid) to give as a gift. But , consider this: If you feel an estate plan is too personal a gift, we recommend giving a gift certificate good for the cost of a basic plan, which the recipient can then design and add to according to his or her needs. If you feel an entire estate plan is too expensive, you may want to consider paying for a portion of the plan, or for the first consultation with an attorney, just to get your loved one started. And if it’s morbidity that you’re worried about, perhaps giving a gift certificate for a “Loving Family Legacy Plan” sounds more appealing.
This year, don’t give a gift that will impress for a moment but be forgotten within a week; instead, give the gift that will protect your loved one—and their loved ones!—and will last for years to come. Give the gift of an estate plan.
Seniors To Receive a 3.6% Raise in Social Security. Finally!
October 24, 2011
There is good news today for senior citizens! Finally, seniors will receive a long awaited Cost-Of-Living increase in their social security benefits.
According to this article in CNN Money, “Social Security recipients will receive a cost of living adjustment of 3.6% starting in January.” This will be the first “raise” recipients have seen in three years, and most welcome the increase. “Many seniors have felt squeezed since banks are paying virtually no interest on savings accounts and stock market declines has eroded their retirement accounts.”
Unfortunately, many seniors may not see a useful increase in their social security income thanks to a hike in Medicare premiums expected to be announced next month. “For the past two years when Social Security benefits stayed the same, many seniors were shielded from the increase in Medicare premiums because of a “hold harmless” provision that protects more than 70% of beneficiaries… However, high-income beneficiaries and new enrollees did see their benefits reduced because they are not covered under the provision.”
Even with the expected increase to Medicare premiums, most seniors are simply glad to see the Cost-Of-Living increase in their social security. Those receiving Supplemental Security Income (“SSI”) will also see an increase, and we expect that the Department of Veterans’ Affairs will shortly announce an increase in Veterans Pension Benefits, as well. Stay tuned.
For more complete information about the coming changes in Social Security please read the full article.
Death of Steve Jobs Saddens the World
October 15, 2011
The recent death of creative visionary and Apple co-founder Steve Jobs saddened the world. News of his death traveled like wildfire, and had the online social networks humming with tributes, memorial posts, and sentiments of grief. Mr. Jobs was very private about his personal life, but through his public appearances and his support of various creative enterprises he touched and changed the lives of many individuals; just as his visionary ideas changed the face of technology.
The sad announcement of his death has many people now wondering “what next?” How will this change the company he started? What will happen with his family? As this article from ABC News relates, “The ever-private Steve Jobs was famously secretive when it came to Apple’s new products. As with his personal life, the future of Steve Jobs’ wealth [and family] will also stay under the radar.”
The article mentioned above states that “Given Jobs’ vast wealth and penchant for privacy, he likely set up private trusts for his family and charitable purposes.” Private trusts would certainly have been the logical thing to do, under the circumstances. Trusts are a much more flexible, powerful, and private tool than a simple will when it comes to estate planning. Trusts are useful under any circumstances, but they provide a much greater amount of control and protection of assets, especially when dealing with very large estates.
If Steve Jobs did choose to create trusts to protect his estate then it is possible that we may never truly know how he chose to distribute his wealth. It is probably safe to assume, however, that in addition to providing for his family and loved ones, he may have left a considerable amount to charitable or visionary endeavors. His words and actions during life provide a clue about how he thought about wealth: “Being the richest man in the cemetery doesn’t matter to me…Going to bed at night saying we’ve done something wonderful…that’s what matters to me.”