The Wall Street Journal earlier this week published a rather interesting article that detailed an increased effort by large donors to colleges and universities to impose greater restrictions on the uses to which their gifts may be put. Not surprisingly, the article also describes the angst that this is causing college administrators and development officers.
Jean Chatzy, Editor at Large for Money Magazine has written a great article in which she discusses what I think is a great idea for folks trying to figure out what to give their college graduating kids for a gift. Chatzky discusses a friend's decision to give her child a session with a financial planner. I think that this is really a great idea (even better if you include a seesion with an estate planning lawyer!) I will, from this point forward, recommend to my clients that, if they have not already done so, they arrange such sessions.
The USA Today recently ran a very interesting article on what appears to be a growing trend in the country toward more use of lifetime transfers of wealth. What is especially encouraging is that such wealth transfer techniques as charitable trusts and inter vivos, or living, trusts, are finding greater use among those outside the reaches of the very high net worth families. As I have commented previously, any family wealth plan should, to the extent feasible and advisable, incorporate lifetime gifts and other lifetime transfer techniques. The USA Today article would suggest that more people are thinking about their family's future and their own legacies, and are doing proper planning to achieve those goals. And that, as Martha Stewart would say, is a good thing.
Joel Schoenmeyer over at Death and Taxes has published an interesting post that asks some interesting questions about the tax implications of celebrity autographs and the like. Joel's post raises slightly different issues than my recent post about the possible tax implications of, for example, catching Barry Bonds' 756th home run ball, but the questions are somewhat related and no less interesting. Last weekend a friend of mine was lucky enough to attend Cal Ripken's induction into the baseball Hall of Fame, and was even more lucky to get Cal's autograph. Suppose my friend had had Cal sign a cap or jersey that Lou Gehrig, whose record for consecutive games played Ripken broke, had actually worn. Would that autograph add value to the memorabilia in excess of the $12,000.00 annual gift tax exclusion? Probably. Would the IRS experience a black eye bigger than what it suffered after the McGwire home run ball fiasco discussed in my earlier post? Absolutely. Are we likely to ever see the day when the IRS treats celebrity autographs as taxable gifts? Not very.
I would be remiss if I did not point you to the final installment of Joel Schoenmeyer's excellent 4 part post on the gift tax. Without further ado or embellishment, here is part four:
A final word...16. I've tried to give a number of practical hints on gifting over the years, focusing on things that can be done without an attorney. That being said, there are a lot of gifting situations that simply require the assistance of a professional, and maybe more than one professional:
-you are making gifts of a future interest
-you are making gifts that exceed the $12,000 annual exclusion amount
-you are involved in non-traditional gifting relationships -- loaning money to a child, selling property to a child for less than its fair market value, naming a child as a joint tenant, etc.
-the property being gifted has valuation issues. Obviously it's easy to figure out the value of a gift of $10,000 in cash -- it's $10,000. But what about assets like real estate, or a painting, or a minority interest in a partnership? These are far trickier, and the IRS is far more diligent about auditing in these cases.
Source for post: Death and Taxes
A couple of weeks ago I shared with you the first couple of posts in a four part series that Joel Schoenmeyer had done at the Death and Taxes blog on the federal gift tax. Here is part 3 of Joel's informative discussion:
11. The last major credit or exclusion from gift tax is called the "unified credit." It's found in Section 2505 of the Code.12. The unified credit is currently $1 million, which means you can give away up to $1 million during your lifetime without owing gift tax. Note that this credit works in tandem with the annual exclusion amount. So, for instance, if you gave $100,000 to your daughter in 2007, you would get the $12,000 annual exclusion, and your unified credit would be reduced by only $88,000 (100 - 12).
13. The unified credit used to be, well, unified -- it was tied to the estate tax credit. In other words, there was one credit amount, which could be used during life or upon death.
14. In cases where you make gifts that exceed the annual exclusion, you'll still need to file a gift tax return, even if no gift tax is due. This is so the IRS can keep track of (and potentially challenge) the amount of your unified credit remaining.
15. With all this in place, would anyone ever need or WANT to pay gift tax? I don't know about "want," but in cases involving high net worth individuals, it may be better to make gifts now, and pay gift tax instead of estate tax. Obviously you lose with respect to time value of money (it's better to pay tax later rather than sooner), but you gain a couple of ways:
-You get property and its future appreciation out of the estate. The $1 million you give away today may be worth $2 million (or $3 or $10 million) when you die.
-The estate tax is calculated on the total value of the decedent's estate, including the money being used to pay the estate tax. That's not the case with the gift tax.
Source: Death and Taxes blog
As mentioned in my last post, Joel Schoenmeyer, of the Death and Taxes blog, has put together an outstanding multi-part post on the gift tax. Here is the second part of Joel's excellent gift tax primer:
6. The gift tax is NOT a tax that applies on each and every gift you make. Rather, there are a number of credits or exclusions that a taxpayer can rely upon to avoid the tax.7. One of the simplest of these can be found in Section 2503(e) of the Internal Revenue Code (the "Code"). It's the "Ed Med" exclusion, which exempts the following from gift tax:
any amount paid on behalf of an individual— (A) as tuition to an educational organization... for the education or training of such individual, or (B) to any person who provides medical care...with respect to such individual as payment for such medical care.
"Educational organization" and "medical care" are both defined elsewhere in the Code. One important point: the payments have to be made directly to the educational organization or medical care provider -- payments made to Daughter to reimburse her for these payments, or made to Grandson to be used for such payments in the future, don't count.
8. There's also an "annual exclusion" from gift tax -- you can give up to a set amount ($12,000 this year, but it changes with cost of living) to as many individuals as you want without any gift tax implications. That means 12K to each child, to each grandchild, to each niece or nephew, to each person listed in the Chicago telephone directly, all with no gift tax. You don't even have to file a gift tax return for these gifts.
9. One wrinkle to the annual exclusion discussed above (which can be found in Section 2503(b) of the Code): it only applies to gifts of a "present interest." In other words, if you give $12,000 to Grandson in a cash he can use right now, you qualify. If, instead, you give $12,000 to a trust for Grandson but he can't access the money right now, you don't get to use the annual exclusion for that gift. Obtaining the annual exclusion for gifts to a trust is what's driven the use of crummey trusts, which I blogged about here.
10. A husband and wife who both want to make gifts can elect to "split" their gifts. Let's say that my wife and I want to give $24,000 to each of our children. If I write a check for that amount from my own account, and get my wife's consent on a gift tax return we file, then the gifts will be treated as having been made one-half ($12,000) by me and one-half ($12,000) by my spouse. We both get to use our annual exclusion. The split gifts provision is in Section 2513 of the Code.
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