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Archive for February, 2011


Monday, February 21st, 2011 by

Many people are confused about the rules which apply to giving gifts. There is good reason to be confused. First, there are two different gift tax exclusion figures, which change frequently. Then, there is the question of basis. This newsletter will attempt to provide a basic understanding of the gift tax rules.

First, there is an ANNUAL EXCLUSION. The amount of the annual exclusion for 2011 is $13,000. With this exclusion, you can give a gift to any one person in the amount of $13,000 or less and not have to report it or even file a gift tax return. If your spouse also wishes to make a gift to an individual, a married couple can effectively give away $26,000 to any member of individuals without having to file a gift tax return.

Then there is the LIFETIME EXCLUSION. The lifetime exclusion was $1,000,000 through 2010, but for the years 2011 and 2012 has been temporarily increased to $5,000,000. If you give away more than $13,000 to an individual at any one time, you must report it to the IRS on a gift tax return. However, you will not be subject to gift tax until you have given away a cumulative total of $5,000,000 over your lifetime. For couples, this means there is a $10,000,000 lifetime gift exclusion. For example, if you wish to give your son a $50,000 gift for a down-payment on a new house, you simply file a gift tax return to report this gift and apply $50,000 of your lifetime gift exclusion to eliminate any tax being owed.

As you can see, there are a wealth of opportunities presented in 2011 and 2012 to utilize gifting strategies as part of your estate plan. However, we must remember that property received as a lifetime gift generally takes a “carry over” basis. This means that the basis in the hands of the person who receives the gift is the same as it was in the hands of the person who made the gift. Thus, if given a gift of stock that was purchased many years ago for $1,000, but is worth $10,000 at the time of the gift, the basis is $1,000. This means that if the person who received the gift turns around and sells the stock for $10,000, the gift recipient will owe $9,000 in (capital gains) income tax.

However, if the property is left to beneficiaries in a Will or a Trust and received after a decedent’s death, then that property takes a “stepped up” basis meaning that in our same example, the stock recipient would have basis of $10,000 and there would be no capital gains tax due if the beneficiary turned around and immediately sold this inherited stock.

One final concept to be aware of is the difference between a “completed gift” and an “incomplete gift”. Here is an example of which many people are not aware. If you put a child’s name on the deed to your house, you have made a completed gift at that moment of the full value of your house, or at least the value of the interest you have deeded to your child. This gift must be reported on a gift tax return. On the other hand, if you put your child’s name on your bank account, you have made an “incomplete gift” and it will not be completed until the child actually withdraws money from the account to use for his or her own benefit. When the child does withdraw money, you must report the gift.

Gifting also has serious implications if you are going to need to apply for Medicaid benefits within five (5) years of making certain gifts. So, you can see that there are both opportunities and pitfalls with respect to gift giving. As a Jacksonville, Florida Estate Planning attorney, my purpose is to guide my clients so as to maximize the opportunities and minimize the pitfalls.



Tuesday, February 8th, 2011 by

According to the Humane Society of the United States, 39 percent of U.S. households have at least one dog and 33 percent have at least one cat. Together, we own more than 77 million dogs and 93 million cats! Then there are the 12 million birds and 7 million horses, together with our tropical fish, ferrets, hamsters, gerbils, guinea pigs, lizards, snakes, turtles…you get the picture. We Americans really love our pets.

Responsible Pet Owners Month was created to remind us about the importance of properly caring for our companion animals. What does responsible pet ownership entail? Much of the emphasis is on dogs and cats, since they are far and away the most popular. Spaying or neutering stands at the top of the list. Every year, 8 million cats and dogs, many of them strays, wind up in animal shelters across the country. Of these, more than half are put down.

Responsible pet ownership of a dog includes proper training, feeding a balanced diet, cleaning up after your dog on walks, regular grooming, providing plenty of attention and exercise, and making sure your pet has an up-to-date identification tag implanted, or at least on a collar.

As an estate planning law firm, we think this is also a good time to remind you that while companion animals are sometimes our very best friends in life, they are often not provided for in estate plans. Shelters and veterinarians euthanize an estimated 500,000 pets each year when their owners die before them. While an outright gift to an animal is void under law in some states, the creation of an honorary trust for the care of your beloved animal companions is generally permissible. For example, you can leave your pet to a specific caregiver and create a trust to benefit the caregiver, with specific instructions on how to utilize the funds left for the pet’s care.

The main objective of using a trust to care for your pet is to provide a flexible method for managing financial assets for the benefit of any pets that survive you. By using a trust, you can designate a party to act as guardian or caretaker for the pet. Furthermore, a trust allows you to leave specific instructions concerning the standard of care and special needs of your beloved companion animal.

In honor of Responsible Pet Owners Month, we suggest that you give your beloved companion some extra treats this week. But not too many—that would be irresponsible!





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