NH Elder Law and Estate Planning


There are a handful of taxes  people need to be concerned with in estate planning.  For the most part, only the very wealthy must concern themselves with them.  The $10,000 per year per donee exclusion was recently raised to $12,000.   People make gifts like these in order to reduce their taxable estate at death.  However, if your estate does not near the $2,000 mark, such planning will not be necessary.  Understand that these "tax free" transfers are not "penalty free" transfers according to the Medicaid laws.  This is a common misperception.

The Estate Tax - imposed on the wealthy after death

Most estates -- at least 99% -- don't pay the federal estate tax. The federal government imposes estate tax at your death only if your property is worth more than a certain amount, which depends on the year of death. But all property left to a spouse is exempt from the tax, as long as the spouse is a U.S. citizen. Estate tax is also not assessed on any property you leave to a tax-exempt charity.

Year of Death Exempt Amount
2006, 2007 or 2008 $2 million
2009 $3.5 million
2010 No estate tax
2011 $1 million unless Congress extends repeal

The Gift Tax - imposed on the wealthy before and after death

Unlike the Estate Tax, Congress did not repeal the federal gift tax. It did raise the lifetime exemption and lowered the maximum tax rate. The lifetime gift tax exemption has gone up to $1 million and will stay there (unlike the estate tax exemption). That means you will be able to make a total of $1 million of taxable gifts over your lifetime before owing any federal gift tax.

In addition, you can make an unlimited number of $12,000 gifts (to different recipients) of cash or other property each calendar year, completely tax-free.

Generation-skipping tax

This is an extra federal tax on transfers made from older folks to someone in their grandchildren's generation. When the estate tax is repealed in 2010, the generation-skipping tax will also disappear. Until 2010, the exemption amount will be the same as the estate tax exemption amount (shown in the table below).

Planning Ideas

If you're married, estate tax is most likely to be an issue when the second spouse dies. (When the first spouse dies, everything left to the survivor passes tax-free.) But if the second spouse owns all of the couple's property, and it's worth more than the estate tax exemption, estate tax will be due. So if you and your spouse together own more than $2 million (the current estate tax exemption), you may want to think about using a special trust, making gifts during life, leaving a portion of your estate to charity, or using another tax-avoidance strategy.

Basis of inherited property. A change with far more widespread implications is the end of the "stepped-up basis" rule for inherited property. Under current law, when you inherit something, your tax basis (used to calculate taxable profit when you sell something) is the market value of the property on the date of the former owner's death. So if the property's value has gone up significantly since the former owner acquired it, the basis is "stepped-up" to the date-of-death value. That means you get a big tax break when you sell, because your taxable profit is based on the date-of-death value, not the lower basis of the former owner.

That rule will end when the estate tax does, in 2010. From then on, when you inherit property, you can choose to take a stepped-up basis for only $1.3 million of it. If you inherit more than that, for the rest of the property, your basis will be the former owner’s basis or the date-of-death market value, whichever is smaller. You’ll have to choose which of the assets get the stepped-up basis.

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Judith Fox
31 Squires Lane, New London, NH 03257
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