Since the burst of the housing bubble a few years ago and the subsequent crash of real property value, many of the clients who have come into our office have bemoaned the lowered value of their homes, but we have good news for these clients: You do have options.

One of those options is a QPRT (Qualified Personal Residence Trust) a specific kind of trust which allows you to continue living in your home, while at the same time removing it from your taxable estate. Sound too good to be true? It almost is. In fact, this article in Reuters calls it “a chance for clients to have their proverbial cake — a sweet vacation home in Florida, for example — and eat it, too.”

Here is how it works: “In a QPRT, the grantor transfers up to two residences into an irrevocable trust and retains the right to use the home for a pre-determined period, or trust term. Terms can vary widely — 10 years is typical, but can run for 40 — and the idea is to make sure grantors outlive the term… Once the term concludes, the grantor then pays rent to the trust. The beneficiaries become landlords, and open a brokerage-type vehicle to receive payments titled to the trust. There’s no income tax on those payments, a big plus for beneficiaries.”

The reason the QPRT is such a boon right now, while property values are low, is that grantors are able to “gift” the residence into the trust while the value is low and still under the gift tax exemption amount. If the value of the property increases over the term of the trust (which it almost certainly will) the grantor does not have to pay gift tax on that increase, but the recipients of the trust will still benefit from the increased value.

The QPRT appears to be a perfect tool for gifting property to children, but you do want to be careful about how you structure the trust, and consider carefully your relationship with your children. Once the trust term is over the property belongs to the beneficiaries (your children.) Many families arrange to have the grantor continue to live in the home, but begin paying rent to the beneficiaries once the trust term is up; however, the beneficiaries have no obligation to allow the grantor to continue living in the property.

And if you think you can escape the eviction concern by simply making the term of the trust so long you’re likely to pass away before the term is up, think again. “Die before the term’s up and your property reverts to the estate and takes an estate tax hit. That’s why planners stress picking a term you and your spouse expect to outlive.”

If you feel a QPRT may be a good planning tool for your family, give us a call. We can answer any questions you have and help you determine whether a QPRT could benefit you.

Share on Facebook

Last year was a fairly big year for tax news; with the repeal of the estate tax, the increase in the GST tax exemption, changes to 401(k) and IRA rules, and eventually the agreement on the new estate tax laws, we never wanted for something to write about. But one of the biggest stories may be just hitting the news now. A recent article in the Washington Post reveals that with the right planning, your grandchildren may now have “the ability to receive a tax-free inheritance of $400 million or more.” This isn’t just big news, “this is by far the biggest estate-planning break on record… a tax break you could drive 10 Mack trucks through.”

With so much political huffing and puffing over the state of taxes one might well wonder how a tax break this big could come about. Washington Post writer Karen Hube explains: “This massive estate-tax break was created last year in two steps. First Congress lifted a $100,000 income restriction on who can convert a 401(k) or IRA to a Roth IRA, allowing even the wealthiest investors to convert. Then late in the year, it raised the generation-skipping transfer tax exemption (GST) to $5 million until 2013…Both of these provisions on their own create possibilities for significant tax savings. But used in combination, the results are exponentially greater.”

Of course, taking advantage of this opportunity may not be as easy as it is laid out in the article. With so much at stake, interested investors will definitely want to consult with their estate planners and financial advisors before jumping into anything. But an opportunity like this one won’t come along every year, and this particular opportunity won’t last forever—the $5 million GST tax exemption will only last until 2013. If you think this tax break may benefit your family don’t wait, contact your financial advisor immediately.

Share on Facebook

When it comes to chores many families are not so different from businesses, with members tending to “specialize” in something they enjoy or are good at. Certain chores will often become the domain of one family member or another, lessening the daily burden all around. This may work well for tasks such as cooking, doing the laundry, mowing the lawn, etc.; but when it comes to finances this “specialization” can create long term problems.

While it may be convenient for one partner to pay bills every month, if both partners aren’t aware of the family budget and month-to-month financial status there can be a tremendous disconnect in spending habits, leading to resentment and often a slow decline into debt. Even more frightening, disaster can strike quickly if the “accountant spouse” dies or becomes incapacitated. Quite often the surviving spouse has no idea what the family financial status is, or even where accounts or investments are located and how to access that money.

The best solution is for couples to talk about their finances often, or take turns being the family CFO. You may even want to consider involving the kids in the family financial planning once they’re old enough. Having a regular allowance or earning pocket money for chores not only teaches kids about money management, but also helps them understand when they have to wait to get that new video game, or when the family may have to cut back on certain luxuries.

Furthermore, children are natural problem solvers and activists, and including them in financial decisions such as which charities the family should support, or how to spend surplus cash can make them feel useful and important, as well as teaching them financial accountability.

Many of us look upon our finances with dread; but it doesn’t have to be that way. Skill with money matters can bring us just as much pride and joy as skill with a paintbrush, tennis racquet, or any other skill that must be acquired with practice and hard work. With a little education, and the involvement of the entire family, we can all become the masters of our own financial futures.

Share on Facebook

Do you live in a state that has a friendly attitude toward the estate tax or inheritance tax? You may think you do, but according to this article in Forbes some states made changes to their estate or inheritance tax policies in 2010 as a response to the lengthy uncertainty over the federal estate tax: “Congress took so long to agree on what to do about the federal estate tax, allowing it to lapse in 2010, and many states take their lead from the federal system.”

The federal estate tax is set (for now) but you may still expect some states to continue making changes to their own estate tax. The fact is that state governments are caught between a rock and a hard place; “The changing state landscape… reflects a lot of ambivalence by state officials themselves. They want the estate tax revenue, but worry about chasing wealthy seniors across state borders.”

If you’re looking for an estate-tax-friendly state to which to retire you can check out the link to the map in the Forbes article; but before you move be sure to do your research. Just because a state has no estate tax (or a high exemption amount) one year doesn’t mean it won’t change the next. The best strategy is to be familiar with the state’s history. How long has their estate tax been in place? Has there been any legislation proposed recently regarding the tax? How likely is it that their tax policies will remain the same as they are when you move?

Illinois recently made changes to the state laws regarding estate tax, and other states that are most likely to make changes in the future include Hawaii, Ohio, Connecticut and Vermont. “But don’t count on these efforts… even if you get relief one year, the levy can go up again the next.”

As always, the best strategy is to plan ahead, review your plan often, and have a knowledgeable estate planning attorney on your side.

Share on Facebook

It’s that time of year again; the time of year when everyone starts gathering receipts, assessing income and expenses, and making appointments with tax advisors. Tax time can be a very stressful time for many families, but—with the help of this article from MSN Money—perhaps tax season can be made a little bit easier. The article lists 13 tax breaks from 2010 that can help save you money, including:

• The tax credit for first time homebuyers (if you’re not a first time homebuyer don’t give up, there’s a credit for existing homeowners too.)
• The parking and transit credit
• The college tuition tax credit
• The credit for energy-saving home improvements

And then of course there are the two we’ve been mentioning here on our blog for the past few months:

• The estate tax exemption, and
• The annual gift tax exemption

Of course, not every item on the list is going to apply to every reader, but if even one or two credits apply to you or your family it can be a huge help.

Don’t rely only on this article to ease your 2010 tax burden, your own advisors and tax planners—who know more about your family’s personal and business finances—will be able to give you much more in-depth advice on how best to address your own tax situation. In addition, talking to a professional advisor right now provides the perfect opportunity to tackle any issues in 2011, hopefully making this time next year a much happier and less stressful time for everybody.

Share on Facebook

The season of giving is upon us… and thanks to 2010’s unusual tax laws we may see some very large gifts before the year is out! If you are considering being particularly generous this year, this article from Reuters explains why the federal government is making 2010 an exceptionally good year for giving.

Most people know that for this year only there is no estate tax. But the year is almost over, and next year the estate tax is slated to go up to an astounding 55%. The more you can afford to give away now, the less that will eventually be subject to the estate tax. However, “the incentive to give stems not just from a looming increase in the estate tax, but also from the lowest tax rate on gifts in a generation — a maximum of 35 percent. That top rate was 45 percent in 2009 and jumps to 55 percent next year unless Congress acts.”

Those last three words, “unless Congress acts,” carry a lot of weight. Congress could choose instate lower and more reasonable tax rates in 2011; but right now we just don’t know, and the clock is ticking to the end of this “golden year.” There is nothing wrong with waiting to see what happens, but you may want to at least have the conversation with your estate or financial planner, so you know your options and can act swiftly when the time comes.

Very few people really want to give away their hard-earned money; but as the saying goes, you can’t take it with you, and most people would rather leave their legacy to their family rather than the government.

Share on Facebook

It may seem like you just can’t catch a break when it comes to paying taxes, but according to this article in the Wall Street Journal there are a few little known tax breaks that could end up saving your family money. Some are new—so new, in fact, that it is still before the Senate—such as the tax exemption for employer provided cell phones and smart phones; and some—like the tax free income homeowners can earn if they rent out their home for 14 days or fewer during a year—have been around for a few years.

Of particular interest to our clients is the gift tax exclusion (another lesser known tax break that has been around for a few years.) As stated in the article, “Anyone may give anyone else up to [$13,000] per year in cash or property, free of gift tax. One partner of a married couple can double the gift and the exemption. So a couple with three married children and six grandchildren could give away over $300,000 a year, tax-free.”

We say that this gift tax exclusion may be of particular interest to our clients because if you are looking for a way to lower your estate tax, or anticipate applying for government medical services in the next few years, giving gifts to loved ones right now may help you achieve your goal—if you go about it the right way.

Contact our office for more information on how any of these “Robin Hood” tax saving techniques may help your family this year.

Share on Facebook

Tax day is coming up quickly, are you ready to file? And just as important—are you taking advantage of all the savings and deductions available to you? Most people who do their own taxes are unaware of some of the lesser-known deductions which can help you save money come tax-time. We have a couple of articles we’d like to share with our readers that may make it easier for your family come April 15^th.

A recent article on SmartMoney.com offers 3 often overlooked ways to save on your income taxes. Two of the three items have to do with parenthood and buying a home, but of particular interest to our readers is tip #2, Selling Grandma’s Stuff: “If you sold something last year that you inherited, understand that your tax basis for gain or loss purposes generally has nothing to do with what your benefactor paid for the asset. And that’s probably going to save you a bundle in taxes.” If you sold an asset from an inheritance last year (or if you received an inheritance last year at all, regardless of whether you’ve sold the asset or not) contact our office before filing your taxes.

Another potentially useful resource for tax savings is the ABC News article Top Ten Commonly Missed Tax Deductions to Put Cash in Your Wallet. This article reminds us to include the little things—such charity volunteer related expenses, the new car deduction, old school books used for work, and more. There are a number of tax deductions your family may be able to take advantage of… if you just know where to look.

Share on Facebook

Why do people give so many charitable gifts in December? The holiday spirit may not be the only thing inspiring people to give to the less fortunate this month, it may also have something to do with lowering your 2009 tax bill. If it’s taxes you’re worried about, there are a few other moves you can make after you’ve done your charitable giving. Ashlea Ebeling of Forbes has a whole list of things you can do to lower your 2009 tax bill before year’s end, we’ll mention just a few of them here:

• Fund those retirement savings accounts. As the article above points out, you can fund your 2009 retirement accounts up until April of 2010, but if you have an employer who will match your investment it’s likely they’d like to know before the end of the year what amount they’ll be matching. If you’re self employed you’re on a tighter schedule because the deadline for setting up a solo 401(k) is December 31.
• If have plans to receive any expensive medical procedures in the near future that won’t be covered by your insurance, you may want to consider having them done before January 1^st. Unreimbursed medical expenses that exceed 7.5% of your adjusted gross income are deductable.
• If you’re in the market for a new home, the homebuyer credit has been expanded from November 30^th to May 1^st 2010. This credit used to be only for newcomers to the real estate market, but is now available for both new homebuyers and longtime homeowners looking to purchase a new home.
• A different—but related—course of action is making upgrades to the home you already own. Certain energy efficient improvements to your home can also get you a credit on your taxes… if you get the improvements done before the end of the year.
• One more way you may save money on your taxes this year that you won’t find mentioned in the Forbes article is to create an estate plan which includes a trust. To the extent that the legal planning services cover tax advice or regard income producing property, the fees you invest in establishing and operating a trust are deductible from your federal income taxes.

All of these are good ways to save money on your 2009 taxes, but action needs to be taken before the end of the year. That gives you only… 24 days left to take action!

Share on Facebook