The gift tax is also a component of the federal transfer tax system and is a tax imposed on transfers (i.e., gifts) of property during life, either given outright or to a trust. Like the estate tax, the gift tax is a transfer tax distinct from the familiar income tax.
Generally, the gift tax is determined by applying the transfer tax rate (the same rate that applies to the estate tax) to the value of property above the exemption amount (the same exemption amount that applies to the estate tax) that is gifted by one person to another during their lifetime, but not including property transferred to a spouse.
Thus, the gift tax covers transfers of property during life, while the estate tax covers transfers of property at death. The two taxes work together, and are said to be unified.
So from a transfer tax perspective, is it better to give away property as a gift during life (subject to the gift tax), or to leave assets to heirs in a will at death (subject to the estate tax)? Generally, if you give assets away while you are still alive, you are also ridding your estate of the future appreciation in the value of that asset. The assets you give away now will trigger a lower gift tax (if any) today than an estate tax years from now because of the assets’ appreciated value at death.
Gift Tax Annual Exclusion
Each year, a person can gift to any one or more other persons up to the annual exclusion amount (currently $14,000 per recipient in 2015) without triggering the gift tax. Married couples can combine their individual annual exclusion amounts and gift $28,000 each year to each person without triggering the gift tax.
Annual exclusion is meant to shield from tax the small common gifts made every year to friends and relatives, such as birthday presents, holiday gifts and small tokens of appreciation.
The Gift Tax is discussed in more detail in my book “Nothing But The Truth About Estate Planning, Probate And Living Trusts”. Download your copy here: Nothing But The Truth About Estate Planning, Probate And Living Trusts by Larry Israeloff CPA & tax attorney.
You should always work with a lawyer when setting up a trust. A poorly created trust can be confusing, expensive, and/or ineffective. The trouble with do-it-yourself planning is that even if your situation seems simple, you are not aware of and won’t think of the many unusual things that can go wrong, especially with wills and trusts. These mistakes can end up costing you or your heirs a lot more than you saved in legal fees.
If you have a unique situation, need a special needs trust for a disabled beneficiary, or are overwhelmed by a complex or large estate, hiring a trusts and estates lawyer will help you answer any questions and ensure that a legal and effective trust is created.
As both an attorney and a CPA, I am a “one-stop shop” for legal, accounting, tax and financial planning services. I can help people more effectively manage their wealth and establish an estate plan that is coordinated with and fits neatly among all the pieces of their personal lives – household budget, cash flow, investments, education planning, taxes, and retirement planning.
“Why Retain An Attorney To Establish A Trust?” is discussed in more detail in my book “Nothing But The Truth About Estate Planning, Probate And Living Trusts”. Download your copy here: Nothing But The Truth About Estate Planning, Probate And Living Trusts by Larry Israeloff CPA & tax attorney.
From a simple standpoint, many people initially think of an estate plan as having a will. On the more complicated end, some think of an estate plan as an elaborate arrangement only rich people need to plan who gets what out of their millions of dollars. Most people think estate plans only apply to the ultra-wealthy.
But no matter how large or how modest, everyone has an estate. Your estate is comprised of everything you own— your car, home, bank accounts, investments, life insurance, furniture, personal possessions. And just like the wealthy, you probably want to control, with the least expense, how those things are given to the people or organizations you care most about. That is estate planning—making a written plan in advance with instructions stating whom you want to receive the things you own after you die.
Estate planning is not just for “the wealthy.” Good estate planning often means more to families with modest assets, because they can afford to lose the least.
Estate planning is discussed in more detail in my book “Nothing But The Truth About Estate Planning, Probate And Living Trusts”. Download your copy here: Nothing But The Truth About Estate Planning, Probate And Living Trusts by Larry Israeloff CPA & tax attorney.
A Personal Financial Specialist, or PFS, is an individual who is highly qualified to offer advice on a variety of financial issues and has earned the PFS credential from the American Institute of Certified Public Accountants. He or she can help you establish and build an investment portfolio, minimize your taxes, assist with estate planning, recommend insurance, and help you plan for retirement. It is possible for you to do all of these things on your own or to work with separate advisers in each wealth management area, but a PFS is a one-stop shop who can organize the process and focus your efforts. A PFS provides personalized attention and advice based on your specific circumstances.
Setting Goals and Creating a Financial Plan
There are three things you and your PFS will do initially and on an ongoing basis to determine how best to manage your wealth:
- First, you will assess your current situation.
- Then, you will set financial goals and choose the means to achieve them.
- As time passes, you will evaluate your progress toward your goals, determine if those goals still apply, and make adjustments to your plan when necessary.
Putting Things in Perspective
Statistics on financial planning can be frightening when you think about how quickly the years pass and retirement arrives. According to BusinessInsider.com, only 50% of Americans have more than a single month’s income saved. Many people are also unaware of what they are spending and how their current spending habits affect their long-term savings goals. A PFS will evaluate your current financial position, analyze your finances from a uniquely professional viewpoint different from your own, and help you determine what changes must be made now to help achieve your long-term goals.
Empowering You Financially
Working with a PFS helps you put your current earnings, your projected earnings, and your long-term outlook into proper perspective. He or she does not make decisions for you or take control of your money. Instead, the two of you work together to determine the appropriate financial path you should be following. It is entirely up to you whether or not you want to act on the advice of a PFS.
The world of finance and wealth planning can feel overwhelming, especially if you are just beginning to consider your financial future. A PFS can provide information, education, and guidance to help you get a solid grip on your financial situation.