Tag Archives: estate planning attorney Northern Virginia

Gifting as an Estate Planning Tool: What You Need to Know

lifetime gifting for estate planning

Gifting as an Estate Planning Tool
NOVA Estate Lawyers – Leesburg, VA

For many people, passing on money and property to their loved ones happens after they die. However, if you have a sizable estate, you may not want to wait until then to give your heirs their full inheritance.

Under current federal law, individual estates valued above $10 million or $20 million per couple (indexed for inflation each year through tax year 2025 – so for 2018, the amounts are $11.2 million and $22.4 million, respectively) are subject to a 40 percent federal estate tax at the top rate. Strategic lifetime or inter vivos gifting can reduce the size of your taxable estate before your death, and help your beneficiaries avoid this hefty financial burden.

Qualified gifting is the complete and irrevocable transfer of assets from one person to another, where the giver does not receive anything in return. Certain IRS exemptions allow you to make these gifts completely tax-free, provided their values fall within the federally allowed limits. Going above these allowable amounts means that you, as the giver, are obligated to report the gift to the IRS and pay a federal gift tax.

If you plan to use gifting as an estate planning tool, you’ll want to plan out your giving and time it properly, so you and your loved ones can avoid as much estate-related taxation as possible. Here is a basic overview of annual and lifetime gifting exemptions, and how you can make the most of them.

Annual Gift Tax Exclusion

For tax year 2018, the annual gift tax exclusion allows you to give any single individual up to $15,000 per calendar year, tax-free. That means if you have three children and give each of them $15,000 this year (or $30,000, if you are married and you and your spouse “split” the gift), you do not need to pay gift tax. However, if you give one child $16,000 in a single year, $1,000 of that is considered taxable, and counts against your allowable lifetime gift amount (see below).

By the same token, your recipient does not have to report annual gifts under $15,000 as income, but they must report any income or interest earned directly from that gift.

Lifetime Gift Tax Exemption

The lifetime gift tax exemption is connected to the estate tax exemption: The $10 million limit is the combined amount that you can give away prior to death and leave to others after death, without being subject to federal taxes. This means that if you give away $5 million in non-exempt gifts while you’re alive, only $5 million of your remaining estate is tax-exempt, and your estate must pay taxes on anything beyond that amount.

If you are married at the time of your death, your surviving spouse is entitled to their own individual exemption plus any of your unused exemption, if you properly invoke portability in your estate plans.

You must also consider that the estate tax exemption is currently set to return to its previous $5 million individual limit in 2026. If you are young and unlikely to pass away before then, you’ll want to adjust your gifting plans accordingly.

Exceptions to the rules

There are a few gifting scenarios that do not count toward the above limits:

  • Marital gifts. If both spouses as U.S. citizens, they can make unlimited lifetime gifts to one another without paying taxes on those gifts.
  • Medical and educational gifts. Payments made directly toward a dependent-beneficiary’s medical services or education (e.g. tuition expenses) is not included in your lifetime gifting amount.
  • Charitable gifts. You do not have to pay gift tax on gifts given to qualifying organizations like charities, religious or educational institutions, government agencies, and 501(c)(3) tax-exempt organizations.

You can learn more about gifting, including specific information about the state laws in Virginia, in our blog post.

Talk to an estate planning attorney about gifting.

If you’re considering making gifts to reduce your taxable estate, it’s important to speak with an experienced attorney who can educate you on federal gift tax laws and other implications of lifetime giving. You can also work with your estate planning lawyer to create a strategic gifting plan that reduces your taxable estate while leaving you enough to support yourself.

The Law Office of Patricia E. Tichenor, P.L.L.C. has been assisting Northern Virginia individuals with their estate plans since 2001, and we’d love to help you create the best strategy for your family’s future. Contact us today to talk about your unique estate planning needs.

Estate Planning Tips for New Parents

estate planning for new parents

Estate Planning for New Parents
NOVA Estate Lawyers – Leesburg, VA

Before you had your child, you only had to think about inheritance for your partner (and maybe your siblings or cousins). As self-sufficient adults, your heirs would be financially OK if you died tomorrow and left them whatever was in your estate. More importantly, they’d understand what to do with those assets and how to manage them.

Small children, on the other hand, cannot financially provide for themselves, and likely wouldn’t have the maturity or knowledge to handle the assets you left them. That’s why, when you have a child, your estate plans need to consider not only the money and property you’re leaving behind, but how your estate will be managed on your child’s behalf, and who will care for the child in your absence.

What’s the best way to provide for my child in my estate plans?

As a new parent, you’ll want to update your estate plans as soon as possible after your child’s birth or adoption. Here are a few key elements you should incorporate:

Legal guardianship designation

One of the most crucial considerations for parents of minor children is who would care for them if both of you were to die. It’s an unthinkable situation, but it could happen, so you’ll need to appoint a trusted, responsible legal guardian in your will. You may also wish to designate this person as a Standby Guardian, who can care for your child if you become permanently or temporarily incapacitated during your lifetime. Always ask a person before you include them as a guardian in your estate plans to ensure they accept and understand their responsibilities.

Revocable living trust and trustee

When you pass property through a will, it goes through a lengthy, expensive probate process. It also becomes tricky when you try to leave assets to a minor child, as they may not be capable of managing money and property yet. Instead, you can set up a trust, in which an appointed trustee manages your assets on behalf of a beneficiary (i.e., your child) until they are old enough to inherit it. A trust has the added benefit of keeping the inheritance process out of court, which means it is faster and more direct.

You can learn more about how a trust works to provide for your minor child or a beneficiary with special needs in our blog post.

Beneficiary designations

If you have payable-on-death assets that require a special beneficiary designation form, such as a life insurance policy or a retirement account, update these to include your child as a new primary or secondary beneficiary.

Aside from the above, a complete estate plan also includes your will, a durable general power of attorney, and a durable medical power of attorney.

You may be tempted to put off estate plan updates because you’re too busy worrying about your child’s immediate needs, but it’s imperative to make time for this. The only thing more important than caring for your baby right now, is making sure they’ll be taken care of if something happens to you.

Speak with an estate planning attorney today.

Every family is different and has their own unique estate planning needs. The Law Office of Patricia E. Tichenor, P.L.L.C. has been assisting Northern Virginia families with wills, trusts, legal guardianships, and other estate-related documents for more than 15 years.

Contact us today to learn how we can help you create the best plan for your family, and ensure that your child’s future is secure.

Explore the Tax-Saving Strategy of Lifetime Giving

Explore the Tax-Saving Strategy of Lifetime Giving

Explore the Tax-Saving Strategy of Lifetime Giving
NOVA Estate Lawyers – Leesburg, VA

Giving money or assets to your loved ones during your lifetime rather than having them wait until after your death to collect, is defined as lifetime giving. It is an estate-planning strategy used to reduce estate taxes by spreading gifts throughout your lifetime using certain exemptions created by the federal gift tax laws in the United States.

Gifting involves one person transferring cash, real estate, or assets to another while receiving nothing in return, rather like giving a birthday present to someone. With gifting, you may have the opportunity to help a loved one with needed cash, or you might make unlimited direct payments for their benefit to cover medical or education bills. Plus, you get to see their appreciation and the benefits of such a gift while you are still alive. To qualify, your gift must be a complete and irrevocable transfer.

For Tax Year 2017, the IRS allows a person to give up to $14,000 per year as a gift, without incurring a gift tax or having to report the gift being made on the giver’s tax return. For parents or spouses, the amount each parent can give becomes a “splitting gift” which allows a total gift to say a child of up to $28,000. The recipient also has no obligation to report the gift, and s/he does not owe taxes for the gift (unless it comes from a foreign source).

Amounts exceeding $14,000 given by a single person in a given year, however, require the giver (person making the gift; not the recipient of the gift) to file an IRS Gift Tax Form 709 with the federal government and pay any taxes owed (if applicable) for each dollar that exceeds the $14,000 limit.  Spouses splitting the gift must also file Form 709. However, there is no separate State Gift Tax for a person making a gift who resides in Virginia.  Gift tax is paid after your death.

Form 709 is merely a reporting mechanism for you to report in each calendar year that you are alive all gifts which then exceeded the annual excluded amount. This is because, under federal law, you have a Lifetime Exemption which is currently $5,430,000 (also known as the allowable amount). This Lifetime Exemption applies to the combined:  (1) value of all gifts made during your lifetime in any calendar year to any person which you reported on Form 709 as exceeding the then annual limit (now $14,000 but expected to increase in coming years); and (2) value of your entire estate passing to your beneficiaries at the time of your death, and any gifts provided from the estate over the yearly deduction are subtracted from that total.

A Helpful Example

For example, if you gift your daughter with $150,000 in a single year, the $14,000 is exempted, and you would need to file a gift tax return and report stating that you used $136,000 of your lifetime exemption of $5,430,000. It then reduces your lifetime exemption amount to $5,294,000. However, you could gift $14,000 per year without affecting your lifetime exemption. In addition, if you made additional payments directly to a medical or educational account, these amounts would also not count against your Lifetime Exemption.

Minimize Taxes

Upon your death, what remains of your Lifetime Exemption is subtracted from the total amount of your estate, thus relieving the estate tax burden upon your Estate and, in turn, those who inherit from your Estate. Using the annual gift exclusion, along with paying directly towards medical or educational accounts or providers of such services, may be a very useful way to preserve your lifetime exemption, and minimize taxes down the road.

Gift Tax vs. Inheritance/Estate Tax

Gift Tax and Inheritance or Estate Tax are often confused with one another. An estate tax takes into account everything you own plus your interests upon your death, and applies the estate tax on your right to transfer such property at your death. A Gift is money or property given during your lifetime and may or may not be subject to tax, depending upon your state. Virginia does not require a beneficiary living in Virginia to pay inheritance taxes, while nearby Maryland does. Virginia also does not have a Gift Tax.

Lifetime Gifting is an effective way to help your loved ones during your lifetime, and preserve your estate from possible future estate taxes, with the caveat to ensure that you retain enough money to support yourself throughout your lifetime.

Work with an Estate Planning Attorney

Working with an estate attorney, like Patricia Tichenor or Camellia Safi at the Law Office of Patricia E. Tichenor, P.L.L.C. can help you avoid making costly mistakes when setting up and implementing your estate plan. If you need an estate planning attorney in Northern Virginia, contact us today.

Don’t Let Errors Derail Your Retirement Income Plan

Don’t Let Errors Derail Your Retirement Income Plan NOVA Estate Lawyers – Leesburg, Virginia

Don’t Let Errors Derail Your Retirement Income Plan
NOVA Estate Lawyers – Leesburg, Virginia

When people talk about retirement income planning, they are most often referring to the assets they have in their IRA and 401(k) plans, and how they will withdraw that money, transfer it, or move it from place to place.

What they need to be careful of, however, is doing it properly. If done incorrectly, it could cost a person dearly in taxes. Here are some points to remember:

Remember Required Minimum Distributions

When taking IRA distributions, a minimum withdrawal is required once a person reaches an age that is six months past his or her 70th birthday. The penalty for not taking enough out is substantial: it can cost 50% on the under-distributed amount.

Defer Taking Inherited Money
When inheriting money, one might be tempted to take the money in cash, but that is not the best solution. It is better to spread out distribution of that money over a term of several years. This will ease the potential tax burden and create a stream of income.

Heed Deadlines when Transferring Money

When the lure of a higher interest rate or can’t-pass-up opportunity arises, people should be careful about how they transfer their assets. If they transfer funds themselves, by taking a distribution from one savings plan and rolling it into another, they must complete the transaction within 60 days of the distribution or risk a 20% mandatory withholding on the amount withdrawn, a penalty for early liquidation of the account. This penalty is collected by the retirement plan administrator and sent to the Internal Revenue Service (IRS). Additionally, funds can only be transferred once per year.

A better way to transfer money is to have it sent via direct transfer from one investment company to another. This method carries no withholding, no amount limits, and is a much-more hands-off procedure for a casual investor who is looking for a better return.

Contact Your Attorney

To avoid making costly mistakes with your retirement income, it is always a good idea to consult with an attorney who specializes in estate planning issues, like Patricia Tichenor or Camellia Safi at the Law Office of Patricia E. Tichenor, P.L.L.C. Contact us today.

–excerpted from MarketWatch, “Tax Mistakes That Can Wreck Your Retirement,” Andrea Coombes, Feb. 21, 2012.

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