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Gift Tax Myths and Realities For 2010.

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Will The Federal Estate Tax Ever End? Probably Not But Here is News on The Death Tax

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Does Pennsylvania Have A Tax On End of Year Gifts to Children and Grandchildren?

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Estate Planning, Gifts, and the End of the Year - Beware of A Common and Horrible Mistake

End of Year Gifts: 
Avoiding the Mistakes and Maximizing the Benefits to Your Children,
Grandchildren and Heirs

David M. Frees III  Wills, Trusts, and Estates
Law Offices:  Phoenixville, Malvern,
and West Chester - Pennsylvania

Many clients wonder about making gifts for estate planning purposes at this time of year.  This article will review some of the most common mistakes people make with respect to end of year and holiday estate planning gifts and how to avoid them. 

And, unless you're very careful, you might make one of these gifting mistakes that can really cost your family. 

Mistake Number One: The single biggest estate planning gift mistake?  Not making gifts when you can and should.  If you find yourself in the position of saving more than you spend each year during retirement, and, your estate exceeds the federal estate tax limit, then you might want to consider gifting to your heirs.  Since the top marginal federal estate tax rate is scheduled to return to 55% absent Congressional action, gifting can result in a major benefit to your heirs.

Mistake Number Two:  People also make fewer gifts than they can.  Currently, everyone can make gifts or $13,000.00 per year.  However, many people still believe that the old $10,000.00 number still applies.  Check each year, becasue the amount does adjust for inflation.

Mistake Number Three:  Married couples can also make double the gift amount by using both annual gift tax exclusions.  Many people believe that unless each spouse is able to make a separate gift, then they are limited to one.  However, if one spouse is able to make a gift of $26,000.00 the other spose can join in this gift by signing a "split gift tax" return.

Mistake Number Four:  Gifting at the end of the year so that the check isn't cashed.  This is a big one!  If you are giving cash, then it can be gifted up to the end of the year.  However, if you give a check, it must be cashed before December 31st.  This can result in you missing the entire year's gift tax exclusion so be careful and consider making gifts earlier in the year so that the receipient gets the investment growth on the asset during the year and it is out of your estate.

Mistake Number Five:  Failure to Leverage gifts is a serious problem.  What do I mean?  For example, you can give a gift of $13,000.00 of cash or you can give a gift of $13,000.00 of a strong but under valued stock.  If that stock rebounds in value to $30,000.00 then you moved much more value from your estate.

There are many more gifting strategies and tactics but make sure that you consider these important gifting mistakes before the end of the year and before you make gifts to your children and/or grandchildren.

Remeber to leave your questions in the comment area below.

If you need an appointment or telephone conference, call 610-933-8069 and ask for
David M. Frees III.  If David is not available or with another client, Donna, Denise, or
anyone of his paralegals or assistants can help you schedule it.

Time is Money - Making Your Estate Plan Efficient and cost Effective

Time is Money Part II of II                                                                         
By:  David M. Frees III, Esquire  Trust, Estate, and Weallth Preservation
Offices serving Phoenixville, West Chester and Malvern and the
entire Main Line, Chester, Montgomery, and Berks and Lancaster Counties

If you read the first installment of this series, then you already know that we are examining ways that you can work with your attorny and/or finanicial and tax advisors to make your estate plan more efficient and to avoid some of the many problems that delay estate and trust administration and create additional costs and fees for your heirs.  Review part I here.

Now more ideas for protecting your plan and your heirs:

5)  Make sure that you leave memoranda and instruction for your executors, trustees and heirs. 

Now lawyers disagree about this but I am a proponent of leaving instructions to the vrious peolple who will handle your estate and any trusts for children, grandchildren and other heirs.  Often, the disposition of personal effects can be a source of disput and delay.  So, anything that you can say to your heirs to prevent them from fighting, or by way of guidance should be helpful.

However, always make sure that your notes ad memos are intended to be informal and for guidance only to prevent them from conflicting with a carefully constructed plan. When you are going to use a binding memo, make sure to consult the lawyer drafting your will or trust to avoid these conflicts and to make sure that a binding memeo is properly drafted under your state's laws.

Finally, trusts - either created during lifetime, or under a will, can and often do contain very braod language giving the trustee or trustees very wide latitutde to decide on investments and/or distributions from the trust.  For that reason, non binding guidance can be vary valuable.

Use a memo to give guidance on when children should get distributions for cars.  Are you in favor of private, parachial, or public school.  What types of travel and education should be supported or encouraged?

6)  Make distributioms during your lifetime.

Distributions made during lifetime can and often are challenged once a person passes away.  However, these transefers of more difficult to challenge - especially when your capacity to make these gifts and your desire are documented by your lawyer.

However, if you can afford to, and do make lifetime gifts, make sure to consult your counsel to avoid or to minimize gift taxes and to make sure that there has been provision for the payment of taxes if you die within one year and the asets are reincluded in your estate for Pennsylvania Inheritance Tax purposes.

A well constructed estate plan that acknowledges such gifts and such tax consequences is even more proof
that you were able to make such gifts, that the gifts were well thought out, enforceable, and complied with any formailties required by law.

7)  Consider a broad but carefully drafted Power of Attorney.

In the event that you were to become incapacitated, a well drafted power of attorney can be an important way of protecting your assets not only for you but for your heirs.  the modern and Enhanced Power of Attorney(TM) can provide for gifting to certain people, the ability to set up and to fund trusts, guidance on investment mix, and many checks and balances. 

For example, in the event your agent wants to make gifts while you are alive but incapacitated, you can require the consent of another special gifting agent. 

Such powers of attorney can also allow family memebers to be paid for providing medical and other services to you that help to keep you at home rather than in a nursing home.  And, if done properly, such contracts and payments do not consitute gifts for mediciade purposes and can protect your ability to qualify for government programs while still legally moving assets out.

Interested in more techniques?
Leave your comments and questions below ofr email them to dfrees@utbf.com

David M. Frees III, Esquire
David Frees works almost exclusivly in the areas of trust, estate, and will planning.
He also represents executors and trustees.

Frees maintains offices in Malvern, Phoenixville, and West Chester Pennsylvania.
These offices serve communities including Devon, Berwyn, Malver, Willistown Township,
Exton, Chester Springs, Downingtown and many others on and around the Main Line.

Time is Money - Making Your Estate Plan Efficient and cost Effective

Time is Money - Making Your Estate Plan efficient and Cost Effective Part I
By:  David M. Frees III, Esquire  Trust, Estate, and Weallth Preservation

Generally speaking, the longer a trust or estate stays open, the greater the likelihood of problems.  Of course, the estate or trust administration must last long enough to make sure that the bills are paid, the tax returns are filesd and claered by the government, and for certain administrative tasks to be performed.  But, many estates remain open for much longer than necessary.  And, as a result, costs and expenses rise.  So how do you build a plan that saves on time and money and limits the liability exposure of your heirs?

1) Make sure that your beneficiary designations match the beneficiaries of your will or trust.  If they do not, then make sure that you explain why and clarify who is supposed to get what. This is a common area of confusion and dispute.  Furthermore, make sure that you are clear on whether joint accounts are really intended to go to the joint account holder on your death or wether the account is simply joint for purposes of convenience.

2)  Make sure to review and discuss the tax clauses of your will and/or trust with your lawyer.  If one heir is getting a major asset such as a piece of real estate, then who pays the tax on that?  Is the tax paid by the estate or the heir?  Conflicts between heirs regarding taxation can be very costly.  And, if it is not clear and the esecutor or trustee has to seek court approval that can take time and adds expense.

3)  Make sure to consider an Interrorum Clause, also known as a "no contest clause."  These clauses state that if you are an heir under a will or trust, and you challenge the document, then your inheritance is eliminated.  This is a significant deterrent to expensive challenges and disputes.  Also find out if the law of your state permits you to go even further and to eliminate a gift if an heir challenges non probate transfers such as trusts.

4)  Be extra cautious about IRA, 401(k) and retirement plans.  Whenever possible, these plans should go directly to younger heirs capable of managing them and making good decisions.  This should ensure the ability of the heirs to take required minimum distributions based on his or her life expectancy.  In this way, you can delay the payment of inheritance taxes and they transfer automatically and without probate.  On the other hand, if they are payable to an estate (and many trusts) then all of the taxes are due right away and probate fees are also due and payable.

For more ways to get your estate lawyer to recognize that time is money check out part two coming soon.



David M. Frees III Wills, Trusts, Estates
Phoenixville, Malvern and West Chester Offices
Serving Chester County, Montgomery County, Philadelphia County
610-933-8069