Wealth Preservation, Trusts and Estates

Do End Of Year Gifts To Children and Grandchildren Still Make Sense?
By: David M. Frees III

In the last few days of 2010 Congress passed, and the president signed, a new bill governing federal estate and gift taxes.

Since we are so close to the end of a calendar year, many people are calling and asking whether or not to make their traditional end of year gifts.

General Thoughts On Gifting and Gifting Before The End of 2010

In general, you should not make gifts that will negatively impair your personal lifestyle. This is especially true when you are retired and on a fixed income.

However, many clients find that they are fortunate enough to be building estate value even though they are comfortable in their retirement. In these cases, or even in cases of smaller estates, where you want to preserve assets and protect them from the nursing home spending, gifts may be a valuable end of year planning strategy.

This article deals predominantly with gifts where you have sufficient funds to avoid medicaid and nursing home issue. If you desire to protect
your assets from nursing home costs, click here.

For those who want to continue making gifts to family members, there is some very good news in the new estate tax law.

Here is a quick review of the new federal estate tax law and rates.

Strategies For End of Year Gifting and Gifts in 2011:

Since the federal estate tax rate will be the same for the next 2 years, and since five million dollars will be covered and tax free at death (or even during lifetime) for those same two years (before we fall back again to only $1 million dollars) large gifts do not need to be made before the end of 2010 unless very large gifts are being made to grandchildren.

Annual gift tax exclusion gifts (currently $13,000.00) per person can be made before December 31st and again after January first (for 2011) without using any of your lifetime or death exemption. Note that this amount might adjust again in the future.

These annual gifts can be made to children and grandchildren and can be made to the spouses of your children and grandchildren as well. If you are married, both you and your spouse can make these gifts and effectively double the amount that can be given without filing a gift tax return or paying any tax.

In addition, greater amounts can be paid directly to a school or for medical purposes in certain circumstances as well.

In short, make gifts of up to the $13,000.00 per person annual gift tax exclusion amount before the end of the year. In 2011 gifts in excess of this amount will either be taxed (at the historically low rate of 35% for the next two years)

Since the effectiveness of gifts can vary widely from person to person, and because there are better and worse ways to make gifts depending on your personal circumstances ask your lawyer and/or tax adviser to consider your personal facts and circumstances when advising you on the use of gifts, paying up insurance policies, or the use of trusts, annuities, and other gifting strategies.

David M Frees III
Unruh, Turner, Burke and Frees
Offices serving Malvern, Phoenixville, Devon, Wayne, West Chester,
Chester Springs and many surrounding communities.

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Do End Of Year Gifts To Children and Grandchildren Still Make Sense?
By: David M. Frees III

In the last few days of 2010 Congress passed, and the president signed, a
new bill governing federal estate and gift taxes.

Since we are so close to the end of a calendar year, many people are
calling and asking whether or not to make their traditional end of year
gifts.

General Thoughts On Gifting and Gifting Before The End of 2010

In general, you should not make gifts that will negatively impair your
personal lifestyle. This is especially true when you are retired and on a
fixed income.

However, many clients find that they are fortunate enough to be building
estate value even though they are comfortable in their retirement. In these
cases, or even in cases of smaller estates, where you want to preserve assets
and protect them from the nursing home spending, gifts may be a valuable
end of year planning strategy.

This article deals predominantly with gifts where you have sufficient funds
to avoid medicaid and nursing home issue. If you desire to protect
your assets from nursing home costs, click here.

For those who want to continue making gifts to family members, there is
some very good news in the new estate tax law.

Here is a quick review of the new federal estate tax law and rates.

Strategies For End of Year Gifting and Gifts in 2011:

Since the federal estate tax rate will be the same for the next 2 years, and
since five million dollars will be covered and tax free at death (or even during
lifetime) for those same two years (before we fall back again to only $1 million
dollars) large gifts do not need to be made before the end of 2010 unless very
large gifts are being made to grandchildren.

Annual gift tax exclusion gifts (currently $13,000.00) per person can be made
before December 31st and again after January first (for 2011) without using
any of your lifetime or death exemption. Note that this amount might adjust
again in the future.

These annual gifts can be made to children and grandchildren and can be made
to the spouses of your children and grandchildren as well. If you are married,
both you and your spouse can make these gifts and effectively double the amount
that can be given without filing a gift tax return or paying any tax.

In addition, greater amounts can be paid directly to a school or for medical
purposes in certain circumstances as well.

In short, make gifts of up to the $13,000.00 per person annual gift tax
exclusion amount before the end of the year. In 2011 gifts in excess of this
amount will either be taxed (at the historically low rate of 35% for the next
two years)

Since the effectiveness of gifts can vary widely from person to person, and
because there are better and worse ways to make gifts depending on your
personal circumstances ask your lawyer and/or tax adviser to consider your
personal facts and circumstances when advising you on the use of gifts,
paying up insurance policies, or the use of trusts, annuities, and other gifting
strategies.

David M Frees III
Unruh, Turner, Burke and Frees
Offices serving Malvern, Phoenixville, Devon, Wayne, West Chester,
Chester Springs and many surrounding communities.

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Congress Acts On Federal Estate Taxes
The New Estate Tax Law: Problems, Solutions and What You Need To Know

Last night, the House of Representatives passed a bill extending the Bush era tax cuts which were about to expire, and, re-enacting a federal estate tax. And, while the new law looks favorable on it’s face, and may make large end of year gifts less important, it also contains some major pitfalls that you need to know about.

This article and several to follow, will review the essential elements of the new law and and some of the effects that it will have on Pennsylvania residents with estate of $1 million dollars or more.

Below is a summery of the rates and changes, a review of some good things and some problems, and a few strategic suggestions.

Here is a summary of some of the changes and rates:

Estate and Gift Tax under the Tax Relief Act

Some of The Good Things:

So as you can see from the chart above, the estate tax bill’s good points are that we can make gifts to both children and grandchildren over the next two years and up to $5 million dollars without paying tax.

Since GRATS were not eliminated or restricted by this bill, we can continue to use these trusts when you have an asset or assets that are rapidly rising in value.

You can and probably should consider gifting, Medicaid planning and other techniques that would use the liberal provisions for the next two years. This is especially true if you wish to help grandchildren.

The bill also contains a portability provision, that appears to allow a surviving spouse to use the deceased spouses five million dollar exemption as well. However, there are a number of potential problems with this provision that may make it far less useful than it first appears. For example, you will lose this exemption if you ever remarry. So we are also mentioning this below if the problem area.

Potential Problems

The most obvious problem is the fact that these changes only last for two years and then the law goes back to a very high rate and a $1 million dollar exemption. For young couple or for wealthier families where large gifts are not part of the plan in the next two years, your estate planning should and needs to anticipate the possible return of a very nasty estate tax.

Also, while the portability of these $5 million dollar exemptions looks good, there are a number of problems that may still make the use of trusts advantageous for protecting the surviving spouse and children and grandchildren. These issues are important to all families, but are especially important in blended families where there are children from multiple marriages or relationships.

Strategies and Actions

If You Are An Executor:

The executors of estates of those dying in 2010 may now choose to be taxed under the currently existing 2010 law or the Tax Relief Act. Review the best result with your legal adviser.

If You Are Single, Divorced, or Widowed:

This act provides a number of opportunities for those who want to make gifts or to preserve assets for children, grandchildren or others. This includes the ability to simplify some documents, and to make gifts, outright, or in trust, and to use GRATS without incurring gift taxes. At Unruh, Turner, Burke and Frees we have a team of estate planning, elder law and tax attorneys to assist you in these matters.

If You Are Married:

Be sure to have your estate planning documents, your beneficiary designations, and your overall existing estate plan reviewed. While there are some unique opportunities for planning, there are a number of potential problems with old documents or dated estate planning strategies that can and should be fixed now.

You should also make sure that your new or updated plans recognize that these changes are for only 24 months and that they are adaptable enough to deal with the change in the law back to the higher rates and lower credits in January 2013.

For more information, call David M. Frees III Chairman: Trusts, Estates, and Wealth Preservation or Douglas Kaune Chairman Elder Law at 610-933-8069.

dfrees@utbf.com

Believe it or not, we have lawyers that advise us too. Here is their disclaimer – The information contained in this article is designed to alert you to changes occurring in the federal estate tax laws which may relate to your personal situation. It is not designed to replace individual consultation with your legal, tax, and investment advisers based on your individual facts and particular circumstances. Interestingly, Unruh, Turner, Burke and Frees ( the very folks who wrote this article) would be please to assist you and to work with your other advisers in developing or modifying your estate planning documents.

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End Of Year Gift Tax Planning Just Got Harder
By:  David M. Frees III

David Frees on Gifting, Estate Planning, Wills and Trusts At The End of The Year

Were you planning to make gifts at the end of this year knowing, that since Congress has failed to act, the federal estate tax returns with a vengeance at 12:01 on January 1, 2011?  Are you one of the families who are tired of waiting for clarification and are willing to pay a thirty five percent tax for gifts before the end of the year?

Well, while tax payers and planners alike have been complaining about the unjustness of uncertainty in the law and financial writers and taxpayers have been begging for clarification, Congress has been failing to provide any real guidance.

And now, to make matters worse, the Baccus bill, while suffering a temporary  defeat just a few days ago, has raised the specter that Congress has suddenly awakened to the idea that many wealthy families are planning gifts at the end of the year and are willing to pay gift taxes at a rate of 35% to avoid higher tax rates in the future.

While the bill was defeated on  a procedural basis, many are now worried that Congress is even considering a bill that would be effective retroactively to December 2, 2010 and would foil the end of year planning that has resulted from Congresses repeated failures to act.

If you’d like to know more about the status of this bill here is a great blog on the Baccus Bill and the federal estate tax by Forbes.

David M. Frees III chairs the Trust, Estate, and Wealth Preservation Section of Unruh, Turner, Burke and Frees

610-933-8069

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Avoiding Trustee Mistakes - David M. Frees III

How To Avoid The Most Common Mistakes Trustees Make

Failing To Communicate Properly

by: Pennsylvania Attorney David M. Frees III

You have heard that communication is vital in marriage and communication is important with your children but communication is also critical in trust administration.

As a trustee to avoid unnecesary hostility from family and beneficiaries communicate with them. It is not only important to keep the beneficiaries informed it may also limit your liability and limit the ability to be sued.

Read this article about the mistake many trustees make of failing to communicate properly and how you can take advantage of of keeping the beneficiaries informed.

See all ten of our articles on How To Avoid The Most Common Mistakes Trustees Make:

Avoiding Trustee Mistakes No. 1:  Trustees Failing To Understand The Trust Language

Avoiding Trustee Mistakes No. 2: Trustees In Trouble  Making Early Distributions

Avoiding Trustee Mistakes No. 3: Trustees Failing To Follow The Prudent Investor Rule

Avoiding Trustee Mistakes No. 4: Trustees Failing To Follow The Uniform Trust Act

Avoiding Trustee Mistakes No. 5: Trustees Failing to Follow The Principle And Income Act

Avoiding Trustee Mistakes No. 6: Trustees Failing to Communicate Properly

Avoiding Trustee Mistakes No. 7:  Failing to Properly Reform, Amend, or Terminate

Avoiding Trustee Mistakes No. 8: Failing to File Tax Returns Or To Seek Professional Assistance

Avoiding Trustee Mistakes No. 9: Failing To Understand The Role Of Multiple Trustees

Avoiding Trustee Mistakes No. 10: Trustees Failing To Do The Job

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