David M. Frees III on a 2010 TO DO List.

Now that we are a few days into 2010 it has become clear that the rules about the federal estate tax and the gift tax are anything but clear.

And with so much confusion, especially about the gift tax, I thought that a few basics might help to avoid costly mistakes.

Myth #1. The gift tax was eliminated on January 1, 2010 just like the estate tax.
Fact: Only the federal estate tax was eliminated. The gift tax remains intact and any gifts made this year are subject to the gift tax rules.

Myth #2. The amount that you can gift each year without tax (the annual gift tax exclusion) goes up every year.
Fact: Last year the exclusion amount was $13,000.00. This year, because inflation was so low, the amount will remain the same.

Myth #3. If you exceed that annual amount, then you owe gift tax to the government.
Fact: True and false. In addition to the annual gift tax exclusion, each person has an additional $1 million dollar lifetime exemption. This doesn’t get renewed each year but can be taken in years when you exceed the $13,000.00 dollars per person. There are also exceptions for college education and some health care expenses. So, provided that you file a gift tax return, you will not actually have to pay gift taxes until you both use up your $1 million dollar lifetime exemption and you exceed the $13,000.00 per persona annual limit (which may, from time to time, adjust for inflation).

Myth #4 Gifts are taxable to the recipient.
Fact: The giver cannot deduct the gift for income tax purposes and the gift is not income taxable to the recipient. Any gift tax due is the obligation of the person making the gift.

In short, the gift tax remains alive and well in 2010 and beyond. Make sure that you get good advice about gifting this year as part of your overall estate planning strategies.

David Frees
Wills * Trusts * Estate Planning * Asset Protection Planning
Law Offices in Phoenixville, West Chester, and Malvern Pennsylvania

For an appointment with David Frees to update your estate plan drafted more than 2 years ago, or to correct a plan drafted even more recently and containing federal estate tax planning call 610-933-8069

Note: In Pennsylvania, there are no recognized specialties, or practice areas.
When an attorney is referred to as a trust and estate or will and probate lawyer, this merely indicates that he or she confines or limits his or her practice areas.

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