By Denice Geirach
As reported in The Naperville Sun – November 16, 2008
The economy is in temporary trouble, with house prices and declining of the population and falling bond market. However, for anyone with a question of federal tax on goods exposed to his death, this is a good time to give as many assets as you can. This is one of the best opportunities to transfer wealth to younger generations, without incurring the federal estate tax in the process.
The federal system for the states and presents a combined system. A person is able to give an annual donation of $ 12,000 per donee (or $ 24,000 if the spouse who shares the gift of the person). If the value of the gift exceeds the amount of $ 12,000, the portion of that amount used over a portion of the amount of lifetime exemption.
In 2001, Congress changed the law in this area, increasing the amount a person could leave another person your spouse without incurring taxes on federal property. This amount is now $ 2 million, which is expected to rise to 3.5 million in 2009.
The federal property tax, according to the 2001 law is scheduled to disappear in 2010 (farms will not receive the intensification of the basis of fair market value from the date of death, and therefore pay capital gains tax instead), and will reappear in 2011 with a $ 1 million. There is also a rule further in that it can not give more than $ 1 million during your lifetime without incurring a gift tax.
This is the current state of the law, which will be changed when the new Congress are sworn in next year. During the election campaign, both candidates said they wanted to leave this life, exemption for an amount more than $ 1 million. President-elect Barack Obama, said he wanted to make a lifetime exemption of $ 3.5 million and leave the tax rate at the current rate of 45 percent.
As tax professionals do not believe the federal system of wealth tax is abolished in the short term, most of the planning is the transfer or donation of assets from one generation to the next with minimal tax cost. Due to the temporary price decline in stocks, bonds and real estate, this is a good time to consider gifts of assets, which would allow the gift recipient to enjoy the surge in the price when occur.
Another thing you can do is pay tuition and medical expenses of their children or grandchildren, without federal gift tax consequences or property taxes.
Moreover, as interest rates are down now, this means that many other techniques to give more to their heirs, much more attractive. Indeed now attractive to use loans from family, grantor annuity trusts maintain, intentionally defective grantor trust or a charitable trust lead, allowing you to give your heirs more than they would have been capable of that rates were higher. These techniques are based on tax interest rate the government sets monthly, called the applicable federal rate, which is lower than the fees you might see, by a 30-year mortgage.
Because of this, there great opportunities to transfer their wealth to the next generation. If you're one of those who might otherwise have to pay federal taxes to the estate at his death, consider contacting their estate planning attorney to determine the best course of action to limit their exposure to this tax.
Denice Gierach is a lawyer and owner of the law firm of Gierach in Naperville. She is a certified public accountant and has an MBA. She can be reached at [email protected] or 630-756-1160.
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