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August 21, 2012 By Powers & French

2012 is the Year to Give Gifts

2012 IS THE YEAR FOR GIFTS

2012 is a great year to give gifts because the federal gift tax exemption amount is $5.12 million this year. Unless Congress acts before the end of the year, the exemption rate will return to $1 million in 2013. The exemption amount is basically the total amount of gifts that an individual can give over their lifetime without taxation. So, in 2012, if an individual exceeds the exemption amount of $5.12 million, they would owe the IRS gift tax for any gifts given over the exemption amount. Most of us don’t pay gift tax, but it’s a tax owed by the giver. Recipients do not pay tax on gifts.

Many people also are not aware that some gifts have to be reported to the IRS. There is an annual exemption amount, currently $13,000/recipient, which does not have to be reported. Gifts of over $13,000 to one individual, excepting some family members, need to be reported. Such gifts are not taxed if they are under the lifetime exemption amount, but the reporting is required so that the IRS can keep a tally. If and when the tally exceeds the exemption amount, the giver must pay gift tax thereafter.

Gifting is a popular estate planning tool for wealthier individuals because it can remove potentially taxable assets from an estate. If someone has enough assets to maintain their lifestyle, including adequate savings, they may seek to remove other assets from their ownership so that these assets are not subject to estate taxation later. Gifting assets also allows those assets to grow estate-tax-free – so that someone can transfer stock, for instance, worth $100,000 as a gift instead of leaving it by Will to someone when it has increased in value to $150,000 (and so potentially saving the taxes on the $50,000). Givers even can leverage gifts by giving gifts to specially created trusts that purchase life insurance, which allows an even greater return on the original gift amount. Giving gifts also can incur less tax, if you have a multi-million dollar estate, than after-death bequests because a gift is taxed on the amount of the gift while an estate is taxed on the total value of the estate, not just the amount someone will receive after taxes are paid. (This is easiest to understand with a simplified example: at a 50% tax rate and no exemptions, a $1 million gift would incur a $500,000 tax and so cost $1.5 million total, while to leave someone $1 million by Will would cost an estate $2 million because a $2 million estate would pay $1 million in taxes so be left with $1 million to distribute.)

Even for those without $5 million to give away, gifting can be a rewarding and useful option. We often talk to our clients about it being more fun to give a gift while they are living than waiting to transfer assets as an inheritance once they have passed away. While you’re living, you receive the immense gratification of helping a loved one and seeing the difference that your gift can make in someone’s life.

By Maryellen Sullivan, Attorney
Powers & French, P.A. 209 Main Street, Freeport, Maine 04032; Tel: (207) 865-3135

Filed Under: Articles

January 16, 2012 By Powers & French

What is a Power of Attorney?

There are two general types of powers of attorney [POA]:  financial and medical.  Both appoint another individual, called an agent, to stand in your shoes and act for you. 

In financial POAs, your agent can act for you in financial and business matters.  POA agents can do whatever you can do:  withdraw money from you accounts, pay your bills, sell your real estate, file your tax returns.  Every POA is slightly different and we recommend having an attorney prepare them; particular powers should be expressly granted.  For example, some POAs allow agents to give gifts, even to themselves.  Others may allow an agent to change retirement fund beneficiaries.  These can be important powers to grant expressly for estate planning purposes, especially if you suddently become incapacitated.  We can recommend which powers and provisions to include, depending on your particular situation. 

[Read more…]

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December 9, 2011 By Powers & French

Surviving Spouses of Wartime Veterans May Be Eligible for Special Long Term Care Benefits

The Veterans Administration offers a variety of special pension benefits for surviving spouses of wartime veterans.  Most benefits are based on  financial need and/or long term health care needs and  require that the surviving spouse either be permanently disabled or 65 years or older.   Benefit programs, which are paid monthly in amounts relating to the surviving spouse’s needs and income, include:

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December 8, 2011 By Powers & French

Remedies for Unhappy Beneficiaries

We too often get calls from unhappy beneficiaries – usually adult children whose parents have passed away and a sibling serving as personal representative [PR] either is not giving them enough information about the estate or has not distributed estate assets despite the passage of time.  Our first response is to explore whether they can work things out with their siblings directly; arguing with and distrusting siblings after a parent’s death can be wrenching.  If you get no response or satisfaction, however, the law offers several remedies.

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September 1, 2011 By Powers & French

Maine State Taxation Changes

MAINE TAXATION CHANGES FOR 2011

Maine’s Biennial Budget contains several significant tax changes. Here is a brief summary of some of the changes:

1. The Maine estate tax exemption will become $2 million effective 2013.

2. The top income state income tax rate will be 7.95% effective January 1, 2013 (it currently is 8.5%).

[Read more…]

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