More On Tax Planningfrom The Advisor's Professional Library
- IRAs: Eligibility The eligibility rules for contributing to traditional and Roth IRAs are complicated. Learn how to effectively use them in retirement plans.
- Health Insurance: Health and Medical Savings Accounts A Health Savings Account is a trust created exclusively for the purpose of paying qualified medical expenses of an account beneficiary. Although they are popular, they are not without their pitfalls and the regulations can be complicated. Learn more about how to avoid federal taxation on the accumulation and distributions of HSA.
This is the 23d and final in a series of 23 tax tips thatAdvisorOne has published on each business day in March as part of our Tax Planning Special Report (see our Special Report calendar for a more complete list of topics to be covered and experts who will deliver their insights).
The tax tip today comes from Benjamin Ledyard, director of Wealth Strategies and regional director of the Mid-Atlantic for Silver Bridge Advisors. During his 15 years of experience in wealth management, he has developed expertise in financial, tax, wealth transfer, risk management, investment oversight, family governance, business succession, executive benefits and philanthropic planning.Ledyard holds aJD from Widener University School of Law and a bachelor’s degree from the University of Delaware.
A member of the Pennsylvania and American Bar Associations, he is also a member of the National Association of Estate Planning Councils, the Estate Planning Council of Delaware and the Wilmington Tax Group.
The Tip: Gift Depressed Assets That Are Likely to Appreciate
The Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 was a call to action for families who wish to transfer wealth through gift planning. The temporary rise of the lifetime gift exclusion from $1 million to $5 million—a 500% rise—provides families, says Ledyard (left), with an extraordinary opportunity to transfer assets before death—but the opportunity is scheduled to expire at the end of 2012
Which Assets Are Appropriate to Gift? “The best assets to gift are those you won’t need, those that have a high likelihood of appreciation, such as depressed real estate holdings or a business interest, but also something heirs won’t just go out and liquidate.” As well, donors should not give away income-producing assets they might need in the future. If the gift is cash, it may be wise to set up some kind of trust for “spendthrift protection,” especially for youthful heirs.
For minors, this may mean a Uniform Transfer To Minors (UTMA) or Uniform Gift To Minors (UGMA) account, both of which are managed by custodians, and into which parents, grandparents, relatives or friends can make irrevocable transfers in any amount. If the donor, acting as custodian, dies before the funds are turned over to the child, usually at age 18 or 21, the account may be taxable as part of the donor's estate.
Life insurance, says Ledyard, is an especially good asset to consider giving awayat present because of the increased lifetime gift exclusion. Life insurance, created as a death benefit for one's children or to pass along a business, becomes part of a person's taxable estate if he or she is listed as the owner of the policy, no matter who is named as beneficiary. Ledyard says life insurance can be gifted by signing over ownership of the policy to another person (presumably a family member such as a spouse) or by putting it in a trust, for example, an irrevocable life insurance trust.
See ourTax Planning Special Report calendar for a list of all topics covered in our month-long report.