Lifetime gifting can affect your individual income taxes, your individual estate and gift taxes, and the capital gains taxes that potentially are to be paid by the recipient of the gift.
Millions of Americans face a challenge in meeting their budgets every month – not just financially, but also in their time budgets, says investment advisor Reid Abedeen. “Knowledge is power and time is often money, but what if you don’t have the time to empower yourself with knowledge? For many households, that often means losing out on thousands of dollars through tax deductions,” says Abedeen, a partner at Safeguard Investment Advisory Group, LLC (www.safeguardinvestment.com). “As a family man myself, I understand what it means to work hard to provide the best possible for my wife and children. Had I not worked in the financial sector for almost two decades, I might not have understood how to best troubleshoot my tax return, I sympathize.”
Before the days of estate taxes, children simply moved into the family home and took over the master bedroom after their parents died. Unfortunately, it’s not that easy anymore. There are several ways to give a home to your child. And a few are tax-free. But in order for the transaction to work properly, you’ve got to plan ahead. Here is a rundown of your options.
In Private Letter Ruling 201507008 (released Feb. 13, 2015), the Internal Revenue Service addressed whether: 1) a trustor’s contribution to an irrevocable trust was a completed gift subject to federal gift tax; 2) a distribution of income to a beneficiary was a completed gift; and 3) the fair market value (FMV) of the trust property was includible in the trustor’s gross estate. The IRS concluded that a trustor’s contribution wasn’t a completed gift subject to federal gift tax. The IRS did determine, however, that a distribution of income or principal by a distribution adviser to a beneficiary (other than the trustor) was a completed gift and, on the trustor’s death, the FMV of the property in the trust would be includible in the trustor’s gross estate for federal estate tax purposes.
It's a new tax year, and many deductions, exemptions and other Internal Revenue Service provisions have changed. Be aware of them. Some will cost you more, some will help you. Entering 2015, we begin the paper chase leading up to filing tax forms for 2014. As we account for last year, start planning now for 2015. Time flies. This century already is 14% gone. This year, the estate tax exemption increases to $5.43 million with an inflation adjustment. With proper planning, married couples can take advantage of two individual exemptions, passing $10.86 million to heirs free of federal estate taxes. A taxable estate includes the face amount of life insurance owned by the deceased, so flawed insurance planning for a high net worth person can inadvertently subject proceeds to taxes.
The federal estate tax exemption rises to $5.43 million per person for 2015, but the annual gift exclusion amount stays at $14,000.