Massachusetts Estate Planning & Asset Protection Blog

Understanding Long Term Care Planning

Posted by Dennis Sullivan & Associates on Fri, Jan 19, 2018

Facing the enormity of long term care, whether it is the financial, healthcare, emotional or psychological issues, it is so overwhelming. 

It's needs a team effort!  With the help of family, friends and our team here at Dennis Sullivan and Associates you can make the enormity of long term care manageable 

 

What exactly is "Long Term Care Planning" ? 

Here's one way to look at long term care planning: 

In today’s world, the question is no longer only, “What happens when I die?, but now we need to plan for “What happens if I live?” An estate plan covers the scenario of, What happens when I die.  But long term care covers a large variety of other factors and scenarios that sometime families forget to consider such as what happens if I live but am not healthy and have increased health-care costs and need to rely on others for assistance, either temporarily or on a permanent basis. The estate plan does not address this need. An estate plan can help you answer the first question, but a long-term care plan can help you answer both the first and second questions. Let’s put it another way. An estate plan insures that if you have assets when you die they will be passed in the manner you wish. The key word is “if.” The plan will not, however, guarantee that there will be anything left at that time to pass. Your assets could be mostly or entirely wiped out by a lengthy illness, hospital, and/or nursing home stay, leaving your spouse and other heirs with nothing.

 long Term Care and Medicaid:

I had a conversation last week with a married couple for whom we are preparing a Medicaid application. John is in a nursing home, and Mary is healthy and living at home. I explained to them that Mary can keep half of their countable assets, in their case $75,000, but that they must spend down to below that dollar amount by the last day of the month directly preceding the month we want to qualify John for Medicaid. I have had this conversation numerous times with clients in John and Mary’s situation, and know all too well that this simple instruction is not always followed. The largest part of most spend downs typically goes to the nursing home. But, as most people do, myself included, we wait until we get a bill before we pay it. If I owe you money, I’m not going to chase after you for a bill. Whenever you get around to it and invoice me, then I’ll pay it. The longer the money stays in my bank account, the happier I am. However, this can get you into big trouble and cost you tens of thousands of dollars if you wait for the nursing home bill. If we want John to be eligible for Medicaid next month and we know that he owes the nursing home $20,000 for the past two months of care, but the nursing home hasn’t yet presented Mary with a bill, it does not matter that Mary and John legitimately owe the facility the money. If that $20,000 is still sitting in their bank account next month, causing their account balance to exceed $75,000, John cannot qualify for Medicaid. Even worse than that, he can’t even qualify for next month. He has to wait until the following month, which means they will owe the facility another $10,000, leaving Mary with $65,000 to live on.


So Much to Discuss

For more information on Long Term Care Planning we encourage you attend one of our free educational workshops, call 800-964-4295 and register to learn more about what you can do to enhance the security of your spouse, home, life savings and legacy. January sessions are filling up fast call or register on line to reserve your seat today.  

At the Estate Planning & Asset Protection Law Center, we help people and their families protect their home, spouse, life-savings, and legacy for their loved ones.  We provide clients with a unique educational and counseling so they understand where opportunities exist to eliminate problems now as they implement plans for a protected future. 


Click Here to Register For Our Trust, Estate & Asset  Protection Workshop

Tags: Dennis Sullivan, Elder Law, Estate Planning, Estate Planning Recommendations, Estate Planning Tip, Financial Planning, Retirement, coverage, senior, Attorney, Baby Boomers, Capital Gains Tax, GST tax, Massachusetts, New estate tax law, IRS, Massacusetts Estate Tax, Tax Savings, federal, new regulations, tax, tax reform, tax deductions, taxes, tax liability, tax exemption, New Tax Bill, Tax Bill, 2018 Tax Bill

New Tax Bill: What you need to know

Posted by Dennis Sullivan & Associates on Fri, Jan 05, 2018

How does the new tax bill affect you and your family now and in the future?

The new tax bill has officially been passed by Congress and signed by President Trump, what does this mean for us?  The answer to this depends on many variables discussed here. 

 

First of all, these changes don’t apply until you file your 2018 taxes, meaning that you won’t have to worry about the new law when filing your 2017 income tax returns this spring.  That being said, still we will be experiencing the greatest overhaul of the tax laws in more than 30 years.  The last major changes having been made under President Reagan in 1986. 

One change you can expect to see is that both corporate tax rates and personal income tax rates will drop.  There are also other changes which limit or eliminate personal deductions.   The changes that affect corporate tax rates are permanent, and the changes that affect individual tax rates and deductions are not.

Also in the new tax bill you will find a “sunset” provision, meaning that the new law – as it applies to individuals – will expire on December 31, 2025.   That is, unless Congress agrees to extend the law.  That, of course, will depend on the political and economic climate 8 years from now, including whether the economy responds the way Republicans say it will

       Now let’s take a look at the changes that are likely to affect the average senior.  Good news, the tax rates have been lowered a bit.  There are still 7 tax brackets but the rates have changed with the top rate lowered from 39.6% to 37% and the threshold at which each rate is reached has been altered. (The corporate rate reduction is much greater, from 37% to 21%).

       Some of the most significant changes relate to deductions.  The standard deduction has been doubled to $12,000 for a single person and $24,000 for married couples but personal exemptions have been eliminated.  The deduction for state and local taxes will be capped at $10,000, something that could hurt many Massachusetts residents and especially homeowners because we have high real estate and state income taxes.  


So Much to Discuss:

For the first time in decades major overhauls to the tax system are happening! This is an enormous change that can affect your estate planning and asset protection as well. Be sure to stay tuned as we will discuss more about this new tax bill in our next blog post!    

For more information we encourage you to attend one of our free educational workshops, call 800-964-4295 and register to learn more about what you can do to enhance the security of your spouse, home, life savings and legacy. January sessions are filling up fast call or register on line to reserve your seat today.  

At the Estate Planning & Asset Protection Law Center, we help people and their families protect their home, spouse, life-savings, and legacy for their loved ones.  We provide clients with a unique educational and counseling so they understand where opportunities exist to eliminate problems now as they implement plans for a protected future. 


Click Here to Register For Our Trust, Estate & Asset  Protection Workshop

Tags: Dennis Sullivan, Elder Law, Estate Planning, Estate Planning Recommendations, Estate Planning Tip, Financial Planning, Retirement, coverage, senior, Attorney, Baby Boomers, Capital Gains Tax, GST tax, Massachusetts, New estate tax law, IRS, Massacusetts Estate Tax, Tax Savings, federal, new regulations, tax, tax reform, tax deductions, taxes, tax liability, tax exemption, New Tax Bill, Tax Bill, 2018 Tax Bill

Times Are Changing, So Are Tax Laws

Posted by Massachusetts Estate Planning & Elder Law Attorney, Dennis B. Sullivan, Esq., CPA, LLM on Tue, Aug 26, 2014

The Tax Game Has Changed | Massachusetts Estate Planning Attorney

 

Tax planning, estate tax, trust, congress

 

The Old Ways Don’t Work Anymore

For years, estate planners have done what is considered traditional estate planning. They drafted plans primarily concerned with minimizing future estate tax liability and gave minimal attention to income tax consequences.

This was perfectly fine years ago when the estate tax was much more severe than the potential for income tax. This was attributable to relatively high estate tax rates, low estate tax exemption that was not indexed for inflation, and comparatively low capital gains rates.

However, Congress has tinkered with the tax system in a huge way. Accordingly, the income tax impact of estate planning is taking on greater significance, especially for Massachusetts residents.

 

The Tax Man Cometh

More attention shall now be directed toward the importance of income tax basis considerations in estate planning due to the narrowing between the estate tax rates and the income tax rates. In fact, in most estates worth less than $5.34 million, estate taxes are no longer an issue. Now, income taxes loom large, primarily because of the lack of attention on the income tax basis (i.e. cost or adjusted basis) of capital assets. Also state estate taxes have become critically important because of the lower $1 million threshold for estate taxes in states like Massachusetts.

 

Failing to Update Could Cost You

The bad news for most middle-class taxpayers is that for years they've been fed a steady diet of estate tax minimizing wills and trusts. Worse yet, they hang onto outdated documents for many years, thinking they are done with their estate planning and not wanting to be bothered. Sadly, these old documents will no longer serve their intended purpose of estate tax minimization. A major problem is also created when federal estate tax minimization plans, unless they are updated, will cause a completely avoidable Massachusetts estate tax for a married couple. While there may be no federal estate tax savings with these documents, because very few middle-class taxpayers will ever pay estate tax, the documents will increase income taxes for their heirs upon sale of appreciated assets. Moreover in Massachusetts, there may not only be a completely avoidable estate tax on an additional 1 million dollars, but it may also trigger a large, completely avoidable Massachusetts estate tax on the first death.

 

What to Do About a Completely Avoidable Massachusetts Estate Tax

Bottom line:  the game starts anew. Let's focus on income tax minimization for most taxpayers and forget about estate tax minimization. Unless your estate is worth more than $5.34 million, your biggest risk is Massachusetts estate tax as well as overpaying income taxes due to inattention to income tax basis planning in your wills and trusts.  Don't make that mistake. Review your documents today so that you eliminate these lurking tax problems

 

At the Estate Planning & Asset Protection Law Center, we provide a unified education and counseling process which uses a unique 19 Point Trust, Estate and Asset Protection Review to help people and their families learn how to protect their home, spouse, life-savings, and legacy for their loved ones, click here for more information. We provide clients with a unique approach so they understand where opportunities exist to eliminate problems now as they implement plans for a protected future.

We encourage you to attend one of our free educational workshops, call 800-964-4295 and register to learn more about what you can do to enhance the security of your spouse, home, life savings and legacy.

Click Here to Register For Our Trust, Estate & Asset  Protection Workshop

Tags: massachusetts estate planning strategies, trusts, Nursing Home Costs, Mistakes, Tax on IRAs, Massacusetts Estate Tax, social security, Tax Savings, tax deductions, tax liability, tax exemption, tax reform, taxes, Massachusetts estate tax, transfer of assets, tax, trust, Nursing Home

Tax Fraud, Medicaid Penalty, or Both?|Massachusetts Elder Law Attorney

Posted by Massachusetts Estate Planning & Elder Law Attorney, Dennis B. Sullivan, Esq., CPA, LLM on Mon, Jan 20, 2014

 Taxes, Medicaid, Medicare, Fraud

Ed called me because he had just taken over Dad’s finances and the management of care from his brother, Tom.  That’s when he made a discovery that troubled him and caused him to reach out to us.

Dad was still living at home alone but his health was declining.  Ed began looking at assisted living facilities.  At a cost of approximately $4000 per month, Ed was concerned about whether Dad could afford it.  So I started to ask him about Dad’s assets and income.

Ed told me Dad has about $300,000 in assets but he then went on to explain that Tom had transferred almost $500,000 out of Dad’s name.  He explained that Tom bought and sold investments in Dad’s account so the income was being taxed at Dad’s income level, which was lower than Tom’s.   “Is that a problem”, he asked.

“It could be”, I told him.  If Dad runs out of money and needs to apply for Medicaid, he’ll have to produce 5 years of records and that’s where the problem lies.  They’ll see the money going back to Tom.  As I always explain, Medicaid works differently than the criminal system.  In the criminal system you are innocent until proven guilty, but the Medicaid system works the other way around.

I told Ed that he will have the burden of proving that the money was Tom’s and not Dad’s.  As long as Tom is able to show a paper trail of assets he deposited into Dad’s account that matches the money going back to Tom then no Medicaid penalty will be assessed for a “transfer for less than fair value”.

“But I’m not sure Tom will cooperate.  If he admits that the assets are his, could he or Dad run into problems with the IRS or Massachusetts Department of Revenue”, Ed asked.

I have to admit that if Tom is in a higher tax bracket, that would mean a higher tax bill.  And if Tom transferred assets to Dad for the purpose of avoiding income tax, he and Dad could be accused of committing tax fraud.  I told Ed he’d need to consult with a tax attorney.

My focus, however, was on the Medicaid issue.  I had some thoughts on how to avoid a Medicaid penalty.  Next time I’ll share them with you.

We encourage you to attend one of our free educational workshops, call 800-964-4295 and register to learn more about what you can do to enhance the security of your spouse, home, life savings and legacy.

Click Here to Register For Our Trust, Estate & Asset  Protection Workshop

Tags: Medicaid, MassHealth, tax exemption, taxes, medicaid qualification, tax, 2014

Massachusetts Estate Planning Tips | The Impact of the Fiscal Cliff Deal on Seniors and Boomer

Posted by Massachusetts Estate Planning & Elder Law Attorney, Dennis B. Sullivan, Esq., CPA, LLM on Mon, Jan 21, 2013

The American Tax Payer Relief Act: It's complicated but It Affects Everyone - Especially Boomers and Seniors  

The American Taxpayer Relief Act of 2012 was actually passed by the Senate in at 2:00 am on January 1, 2013. After speculation on whether Speaker Boehner would bring the bill to a vote or if the House would add amendments likely be rejected by the Senate, the House eventually passed the bill at 10:45 p.m. President Obama signed it the next day.  

The bill addresses the Bush-era tax rates, estate and gift tax rates, Medicare reimbursement, among numerous other issues.

TAX RATES 

The bill permanently extends current tax rates for individuals earning less than $400,000 and couples earning less than $450,000. Those earning more will see an increase from 35% to 39.6%. Wealthy folks will see an increase from 15% to 20% on capital gains and dividends. Individuals earning above $250,000, and married couples earning more than $300,000, will see a phase-out of the personal exemption.     

ESTATE TAX 

The estate tax exemption will remain $5.12 million per person, but will be adjusted for inflation. The top rate will grow from 35% to 40%. Portability's extended, as well, and the gift tax exemption will remain at $5 million.   

PAYROLL TAX  

This tax, which funds Social Security, has been at 4.2% since 2011, but will now revert back to the previous of 6.2%.  

OLDER AMERICAN FUNDING 

Funding has been increased for the Older Americans Act and similar programs. This year only, Area Agencies on Aging will receive an additional $7.5 million, and Aging and Disability Resource Centers an additional $5 million.  

The National Center for Benefits and Outreach Enrollment will receive an additional $5 million, and Medicare State Health Insurance Programs will receive an additional $7.5 million.  

There is also a provision that prevents the scheduled 27% reimbursement cuts to Medicare physicians this year.  

At the Estate Planning & Asset Protection Law Center, we help people and their families learn how to protect their home, spouse, life-savings, and legacy for their loved ones.  We provide clients with a unique education and counseling approach so they understand where opportunities exist to eliminate problems now as they implement plans for a protected future.

We encourage you to attend one of our free educational workshops. Call 800-964-4295 to learn more about what you can do to enhance the security of your beneficiaries, digital assests, Estate Plan and legacy

 

Click Here to Register For Our Trust, Estate & Asset  Protection Workshop
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Tags: Massacusetts Estate Tax, Health Care, family, seniors, estate tax, health Care act, Alzheimers Disease, tax, Attorney

Massachusetts Estate Planning Lawyer | What Does Avoiding the Fiscal Cliff Really Mean?

Posted by Massachusetts Estate Planning & Elder Law Attorney, Dennis B. Sullivan, Esq., CPA, LLM on Mon, Jan 07, 2013

All anyone was talking about in the last days of 2012 was whether Congress and President Obama would work together to avoid an increase in taxes caused by the expiration of a number of tax breaks dating back to President Bush.  An agreement was reached at the 11th hour.  But what does it all mean?  And how does it affect seniors?

Click Here to Learn More About How to Avoid the Top Mistakes in Estate & Asset Protection Planning

First let’s talk income taxes.  The President and Republicans reached a compromise, raising the tax rate on individuals earning more than $400,000 and married couples making more than $450,000 from 35 to 39.6 percent.  Payroll taxes will increase as well, back to 6.2 percent, for all wage earnings up to $113,700 in 2013.  The past 2 years saw a 2 percent reduction in mandatory contributions to the Social Security program.  While this will impact 160 million American employees it won’t affect most seniors who are retired.

There was much speculation on the federal estate tax exemption and whether the $5,000,000 exemption would expire and return to $1,000,000.  Remember, at the end of 2010 we went through this when there was no federal estate tax and we waited to see if that law would expire and return the exemption to $1,000,000.  Well, this time, lawmakers decided to make the $5,000,000 exemption permanent .  That means we won’t automatically have to go through this insane process every two years of watching to see what Washington will do at the last minute.  Actually, the exemption, which is currently $5,120,000, is indexed for inflation and will rise year to year.  What Congress did do was raise the federal estate tax rate from 35 to 40 percent.

Another change for 2013, recently announced by the IRS, is that the annual gift tax exclusion, that amount that can be gifted annually per person without paying gift tax or using one’s lifetime exemption of $5,120,000, will rise from $13,000 to $14,000.  Massachusetts does not have a gift tax, however estates above $1,000,000. remain subject to the Massachusetts estate tax. Married couples with the right type of trust and funding may double the tax free amount to $2 million. This is not automatic so its important to make sure you create and maintain the proper estate plan.

Click Here to Learn More About Our 19 Point Trust, Estate and Asset Protection Legal Guide

Another change that threatened to impact seniors was avoided for at least another year.  Congress agreed to a one year extension of current Medicare reimbursement rates, avoiding what would have been a 27 percent cut in reimbursement rates for doctors participating in Medicare.

So, there you have the highlights of the law.  Looking at the bigger picture, the politicians in Washington haven’t tackled the bigger problems we are wrestling with such as the economy, budget deficits, and growing government spending.  But, in the short term, a financial crisis has been averted.

At the Estate Planning & Asset Protection Law Center, we help people and their families learn how to protect their home, spouse, life-savings, and legacy for their loved ones.  We provide clients with a unique educational and counseling approach so they understand where opportunities exist to eliminate problems now as they implement plans for a protected future.

We encourage you to attend one of our free educational workshops. Call 800-964-4295 to learn more about what you can do to enhance the security of your spouse, home, life savings and legacy.

 Estate Planning, Estate Planning Tip, Attorney, income, tax exemption, taxes, Tax Savings, tax reform, tax

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Tags: Estate Planning, Tax Savings, Estate Planning Tip, tax exemption, tax reform, taxes, tax, Attorney, income

Massachusetts Estate Planning Attorney | Year End Gifting Strategies for Your Estate

Posted by Massachusetts Estate Planning & Elder Law Attorney, Dennis B. Sullivan, Esq., CPA, LLM on Fri, Dec 14, 2012

Gifting and other estate tax reduction strategies have been at the forefront of many estate planning discussions as we approach the holidays due to the uncertainty over the estate and gift tax rules for next year. While current Federal estate and gift tax rates have been relatively favorable, much less favorable rules are set to go into effect in January. gifting, estate, planning, holidays

Currently, the federal estate and gift tax exemption is $5.12 million, meaning those with estates worth less than that, or who give away less than that, will not pay Federal estate or gift taxes (the Massachusetts exemption is $1M). The tax rate on estates and gifts above the exemption is a flat 35 percent.

However, unless Congress and the President can agree on a compromise, the Federal estate and gift tax exemption will be reduced to the $1 million credit that was in effect before the Bush tax cuts were enacted. Simultaneously, the maximum estate and gift tax rate will rise to 55 percent.

Gifting Opportunities for Your Estate

Nevertheless, many people are getting ready to make gifts to their loved ones to help reduce their estates. This is because, regardless of what Congress does, you should still be able to rely on the annual gift tax exclusion to shelter lifetime transfers to family members and loved ones. The annual gift tax exclusion hasn’t been affected by other tax law modifications over the last decade and that isn’t expected to change. By systematically giving gifts that qualify for the exclusion, you can gradually reduce the size of your taxable estate over time, thereby reducing your potential estate tax liability.

The current annual gift tax exclusion is $13,000, and it will increase to $14,000 in 2013. You can give gifts of cash or property to an unlimited number of recipients up to this amount each year without any gift tax consequences. The annual exclusion is doubled for joint gifts made by a married couple, although you must file a gift tax return for these joint gifts.

Other gifting opportunities include paying for a loved one’s medical or educational expenses: No gift taxes are imposed on amounts used to pay these costs for another person as long as the bills are paid directly to the provider or institution.

Creating a Planned Gifting Program

In addition to the annual gift exclusions, you can also reduce your taxable estate by bestowing sizeable gifts on as many family members as you desire over a given period of time to reduce your estate tax exposure.

For example, a couple who own $2 million in assets and three adult children could give $28,000 to each child each year for the next five years. By the end of the five-year period, they will have reduced their joint estate by $1.4 million, leaving as estate worth $600,000 (plus earnings in the interim). This would eliminate their exposure to both state and Federal estate taxes. Gifts could be made into an irrevocable trust in order to get assets out of your estate but not subject them to your heirs’ creditors and manage their spending.

However, you must be careful when considering gifting highly appreciated assets such as real estate or stock, as they may expose your beneficiary to capital gains taxes. Gifting through a trust can avoid this outcome as well.

To explore how gifting may benefit your estate, contact The Estate Planning and Asset Protection Law Center of Dennis Sullivan & Associates

Research shows that 86% of trusts don’t work.  That’s why we developed our Unique Self-Guided 19-Point Trust, Estate, & Asset Protection Legal Guide, so you can learn where problems may exist in your planning as well as opportunities for improvement and how to implement a plan to protect your spouse, home, family, and life savings.  Click Here to Download the Guide.

We encourage you to attend one of our free educational workshops to learn more about our process and what you can do to enhance the security of your spouse, home, life savings and legacy. To register for a seat at an upcoming workshop call (800) 964-4295 (24/7) or register online at www.SeniorWorkshop.com

 

Tags: gifts, gift tax, estate, taxes, gifting, Massachusetts, tax, Attorney, trust, holiday, federal, exclusions

Massachusetts Elder Law Attorney | Does MassHealth’s Penalty Apply Only to Gifts?

Posted by Massachusetts Estate Planning & Elder Law Attorney, Dennis B. Sullivan, Esq., CPA, LLM on Wed, Dec 12, 2012

Does MassHealth’s Penalty Apply Only to Gifts?

MassHealth, gifts, elder, law, attorney

When considering the MassHealth penalty elder law clients usually think only in terms of gifts.  However, the penalty is triggered by much more than simply gifts.  The penalty is triggered by a transfer for less than fair value that causes a penalty. Fair value is not measured subjectively, but rather objectively based on fair market value. When there is a transfer of assets out of the applicant’s name, the applicant has the burden of establishing, by documentary evidence that the transfer should not be subject to a penalty.  If it cannot be  prove it – and, again, it is not sufficient to tell MassHealth what the money was spent for – then it is treated as a transfer for less than fair value.  MassHealth requires documentation to prove the fair value.

At the Estate Planning & Asset Protection Law Center, we help people and their families learn how to protect their home, spouse, life-savings, and legacy for their loved ones.  We provide clients with a unique educational and counseling approach so they understand where opportunities exist to eliminate problems now as they implement plans for a protected future.

To gain free online access to the Complete Alzheimer's Resource Kit, which contains care tips as well as other useful information on Alzheimer’s disease, please visit www.BostonMemoryLawyer.com

We encourage you to attend one of our free educational workshops, call 800-964-4295 and register to learn more about what you can do to enhance the security of your spouse, home, life savings and legacy.

Click Here to Register For Our Trust, Estate & Asset  Protection Workshop

Tags: Estate Planning, gifts, MassHealth, gifting, tax, Elder Law, Alzheimer's

Massachusetts Estate Planning Lawyer | 2012 Gifts to Lower Your Estate Tax?

Posted by Massachusetts Estate Planning & Elder Law Attorney, Dennis B. Sullivan, Esq., CPA, LLM on Mon, Nov 26, 2012

Do you have extra assests that you will not need during your lifetime? If so, consider gifting this year because if Congress doesn’t act in the lame-duck session, on Jan. 1, the current $5.12 million per-person exclusion from the federal estate and gift tax will automatically dip to $1 million. Also the tax on transfers above that amount will rise from 35% to up to 55%.

If you have real estate, investments or other assets, in excess of what you and your spouse need to support your lifestyle, you may be a ble to lock in an extra $4 million dollar lifetime exclusion by gifting this year. We recently reviewed an article by by Deborah Jacobs that discusses the timely topic , Will The Estate Tax Boomerang As We Go Over The Fiscal Cliff? which can be accessed here at    Forbes.com.

 

Tax2013 forbes estate planning

Now that the election is over, many folks are wondering what will happen with the federal estate tax. This is one of the Bush era tax cuts set to expire at the end of this year, contributing to the fiscal cliff that we are hearing so much about lately.

From an estate planning perspective, lifetime gifts have always had an advantage over passing assets when you die. Such gifts leave less in your estate for the government to tax, and if the assets increase in value after you have passed them along, you will not owe gift tax on the appreciation. So for the super rich, a drastic drop in the tax-free amount is a huge loss.

Most of us will never come close to using this exemption, however. One reason is that without incurring gift tax or eating into the lifetime exemption, you can give up to $13,000 each year to as many recipients as you like. Couples can combine this annual exclusion to jointly give $26,000. For example, this year a married couple with a child who is married and has two children could make a joint cash gift of $26,000 to the adult child, the child’s spouse and each grandchild – four people – providing the family with $104,000 a year. Starting in 2013, the annual exclusion for gifts goes up to $14,000 ($28,000 per couple).

Feeling flush? Write two checks: one before Dec. 31 for $13,000, and the other on Jan. 1 for $14,000. Just make sure your year-end check is cashed before Dec. 31, or it won’t count for 2012. “To alleviate this problem, wise donors make year-end gifts (usually, anything after Thanksgiving) by way of certified or cashier’s checks,” says Gerry W. Beyer, a professor at Texas Tech University School of Law.

President Obama’s proposed budget for 2013, issued last February, gives us a clear idea of what he would like to do. And it’s not a pretty picture for rich folks or the wealth management industry. The Green Book, as it is called, downloads here as a pdf. For an analysis of its new targets as well as old ones, see my post, “Obama Budget Takes Aim At Rich Folks And Wealth Advisors.”

So should you rush to give away everything to your kids? Not if you might need those assets yourself. But if you and your spouse are worth more than $5 to $10 million together, you might want to check in with your tax advisors–unless, of course, they’ve already called you.

We developed our Unique Self-Guided 19-Point Trust, Estate, & Asset Protection Legal Guide so you can learn where problems may exist in your planning as well as opportunities for improvement and how to implement a plan to protect your spouse, home, family, and life savings. 

Click Here to Download our Trust, Estate, & Asset Protection  Legal Guide

We encourage you to attend one of our free educational workshops to learn more about our process and what you can do to enhance the security of your spouse, home, life savings and legacy. To register for a seat at an upcoming workshop call (800) 964-4295 (24/7) or register online at www.SeniorWorkshop.com

 


Tags: Estate Planning, estate tax, Massachusetts estate tax, assets, tax, lawyer

Massachusetts Estate Planning Attorney | Uncertainty Makes Tax Planning Tricky

Posted by Massachusetts Estate Planning & Elder Law Attorney, Dennis B. Sullivan, Esq., CPA, LLM on Wed, Nov 21, 2012

As recently reported in the Boston Globe, many investors and taxpayers are tackling a daunting task: trying to plot a post-election personal finance strategy as Washington debates the future of Bush-era tax cuts. If they make decisions now, they fear they might guess wrong. But if they wait for the politics to settle, they could get hit with big tax bills they might have avoided. This makes things very difficult.washingtondc

Taxpayers who would ordinarily be in the midst of their year-end planning find themselves in a quandary instead. The Bush tax cuts, which lowered rates and included other tax breaks, will expire December 31 of this year. President Obama and congressional leaders are negotiating whether to extend some or all of the tax cuts; if they deadlock, everyone’s taxes will go up in 2013.

The most likely increases include long-term capital gains taxes, income tax rates on the wealthiest Americans, and top rates on gift and estate taxes. Those are the areas where taxpayers – particularly couples with taxable income of more than $250,000 or individuals with more than $200,000 – are looking for planning advantages. Some may find them.

Take capital gains. The president wants the wealthiest Americans to pay a top rate of 20 percent on gains and selling stock and other investments, a rate which is up from the current 15 percent. Yet if the Bush tax cuts are not extended, middle-income taxpayers would see the rate they pay on capital gains rise to 20 percent as well. Also, some people in lower tax brackets, who are currently exempt from capital gains taxes, would face a 10 percent rate.

The likelihood of such increases means investors may want to sell appreciated stock this year. Some financial planning professionals have suggeted investors should only sell if it makes sense for nontax reasons, such as rebalancing a portfolio, diversifying holdings, or raising cash.

Ultimately with investment decisions,  you don’t want to let the tax tail wag the dog.

The fate of qualified dividends – which are currently taxed at a top rate of 15 percent – also has investors nervous. Without congressional action, the rates would rise between 28 and 31 percent for middle-income tax payers. President Obama wants to impose even higher rates on dividends earned by wealthy individuals and families, increasing the top rate to as high as 39.6 percent for couples with $250,000 of taxable income and individuals making $200,000.

That increased tax bite could make dividend-producing stocks less attractive, which in turn could depress prices. At the same time, municipal bonds may gain some luster since their interest in exempt from both federal income taxes and the new 3.8 Medicare tax. Under the federal health care overhaul, wealthy families and individuals will, for the first time, have to pay Medicare taxes on investment income that exceeds threshold amounts, starting in 2013.

Faced with the likelihood of higher tax rates, those at the top income levels find themselves in an unusual year-end planning position.

Usually you want to accelerate deductions and defer income to the subsequent tax year. I, this case, you may want to do the opposite. That might include such strategies as taking a bonus in 2012 rather than after the New Year or paying property taxes or state estimated income taxes after January 1. State and local taxes are deductible on federal returns, and such a strategy would lower taxable income next year when rates would be higher.

Trying to time deductions, however, comes with a caveat: Congress is considering capping deductions on the wealthiest taxpayers, potentially limiting the advantage of such tax planning. Looking ahead to next year, taxpayers facing rate increases may want to take full advantage of contributions  to retirement accounts, health savings accounts, and other vehicles that allow them to shelter pre-tax dollars and potentially stay in a lower tax bracket.

Financial specialists also agree that it’s a great time for the super wealthy to make gifts to children and other family members. That’s because the current estate and gift tax exemption of $5.12 million per person expires on December 31, 2012. It’s likely to be replaced with a new exemption of $3.5 million – or perhaps just $1 million – with estate tax rates possibly jumping to as high as 55 percent from the current 35 percent.

As a rule of thumb, taxpayers can assume that the outcome in Washington won’t lead to more favorable rates, but they can limit their guesses to about what political leaders might or might not do.

If you decide to take advantage of the current rules, fast action is required. There is not a lot of time left this year.

At the Estate Planning & Asset Protection Law Center, we help people and their families learn how to protect their home, spouse, life-savings, and legacy for their loved ones.  We provide clients with a unique educational and counseling approach so they understand where opportunities exist to eliminate problems now as they implement plans for a protected future.

We encourage you to attend one of our free educational workshops, call 800-964-4295 and register to learn more about what you can do to enhance the security of your spouse, home, life savings and legacy.

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Tags: Estate Planning, IRA, tax deductions, tax exemption, taxes, tax, Obama

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