When an estate is in excess of the Unified Credit, gifting assets is a good way to avoid future estate taxes.

A Qualified Personal Residence Trust (QPRT) is one of the best tools to use because it is so simple.

While we still have a $5,000,000 exemption we should all be encouraging our clients to make gifts this year, assuming it is a taxable estate.

Here are a few of the characteristics of a QPRT:

1.    Transfer the home or homes (a couple is allowed to transfer up to 4) at a significant DISCOUNT. 2.    The gift FREEZES the value at the discounted gift value, so if the home appreciates by the time the client dies all of the appreciation is out of the estate. 3.    While the client is living they still live in the home just like they always did. 4.    If they are married there is no “rent” due at the end of the “term” unless they want to pay rent.  Some couples like the idea of paying rent to the kids after the term as a further means to help the kids and reduce the estate tax. ...

One of the most powerful techniques for the transfer of wealth to children and grandchildren is the intentionally defective grantor trust, or “IDIT”. The IDIT offers the following benefits:

•    An opportunity to transfer significant wealth by getting assets out of your estate at the cost of little or no gift tax.

•    Asset protection for the IDIT beneficiaries.

•    Exemption from the generation skipping transfer tax for the IDIT, meaning the transferred wealth can be passed down to grandchildren and great-grandchildren without exposure to additional estate or gift taxes.

•    The ability for the grantor to pay all income taxes on the IDITs taxable income. This amounts to an additional wealth transfer to the IDIT beneficiaries each and every year, without any gift taxes.

Unfortunately, President Obama’s fiscal year 2013 revenue proposals (read: “big tax increases”) propose doing away with the IDIT. In the proposal’s words: “The lack of coordination between the income and...

The IRS recently won a court argument allowing it to summons property transfer records from the California State Board of Equalization. The IRS is searching for unreported taxable gifts. This move, like so many others by the IRS and the Franchise Tax Board, are parts of ongoing attempts to grab the lowest hanging fruit on the tree to bring in more tax revenue.

Especially in Southern California, many parents end up providing assistance to their children with home purchases. They sometimes take joint title to homes to help their children qualify for loans, or take sole title to the home then transfer title to the children at some future point.

Right now, the IRS appears to be looking at people who transferred real property for no consideration to children and grandchildren from January 1, 2005 through December 31, 2010. However, in estate tax audits, we’ve seen auditors go back through all of someone’s recorded property transfers (sometimes for more than 20 years) attempting to find transfers of real...

The $5,000,000 per person gift tax exemption is supposed to last until December 31, 2012.  Why use it now if you still have next year?  Here are two good reasons.

The first is that given our country’s economic and fiscal situation, the Joint Select Committee on Deficit Reduction, also known as the “Supercommittee”, may reduce the gift tax exemption sooner than 2012.  At least half the members of the committee are insisting on tax increases as part of the deficit reduction “solution”.  (As one wag put it, where do all the “solutions” go after politicians get elected?)

The Obama administration has not only proposed tax increases in its jobs bill, but is also calling for a return of the estate and gift tax rates and exemptions to their 2009 levels.  That means an estate tax exemption of $3,500,000 per person, but a gift tax exemption of only $1,000,000 per person.  So it is possible a significant reduction in the current $5,000,000 gift tax exemption could occur sooner than the end of 2012.

This...

 Wall Street Journal, Family Businesses Catch a Big Break, by Anne Tergesen:

 

Estate planning just got a lot more powerful.  We all remember the Congressional fight over tax legislation last year.  Democrats wanted unemployment benefits extended, and Republicans wanted massive tax cuts.  President Obama’s compromise included a provision nobody anticipated – a $5 Million gift tax exemption.  It is precisely the no-fiscal-analysis-whatsoever, horse-trading approach to these negotiations that suggests that this is a short-term deal that will not outlast the next two years.

This is extraordinary because the gift tax exemption has never been higher than $1 Million.  The power of gifting early, before assets have a chance to appreciate, is a favorite tool of estate planning attorneys.  Congress has indeed opened the estate planning floodgates.

There is a catch.  This opportunity will only last for two years.

Everyone should be updating their estate plans to deal with some very serious issues created by this new law.  Blended families may inadvertently give more or less than...

Title III of the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 is titled as follows:

TEMPORARY ESTATE TAX RELIEF

That’s right.  It’s temporary.  Meaning more uncertainty.  Great.  Is estate and gift tax planning dead?  To the contrary!  The next two years will provide an enormous planning opportunity if the bill is passed.

The bill amazingly provides for a $5 Million gift tax exemption.  No, that is not a typo.  In the past, clients had to go to extreme measures to take advantage of the exemption amount as it increased above $1 Million: they had to die.  Not surprisingly, no client has yet found that a viable planning technique.

As you probably know by now, House Democrats voted yesterday not to allow the bill to reach a floor vote, mostly based on the perceived give-away to the rich of the estate and gift tax relief provisions.  It may be that, to satisfy House Democrats, the bill is amended to temporarily go back to a $3.5 Million exemption amount...

Good overview article on basic estate planning (although the advice on TOD accounts is generally a bad idea).

 

http://www.sfgate.com/cgi-bin/article.cgi?f=/g/a/2010/11/02/investopedia6151.DTL

October 18-24, 2010 has been named National Estate Planning Awareness Week!  It is a great time to review your current estate plan to make sure it is up to date or to get started on your estate plan.  Estate planning is one of the most overlooked areas of personal financial management.  With so many income, estate, and generation skipping transfer tax changes taking place this year and next, don’t leave out this piece of the puzzle.  Careful estate planning can preserve assets built over a lifetime for the benefit of your family, heirs, and charities.