Category Archives: Estate Tax

Lifetime Gifts


Portability: Worth Filing an Estate Tax Return?

Dear Liza: It is my understanding that in order to preserve the “portability exemption” a surviving spouse must file an estate tax return  (706), which would not be required otherwise. It seems that 706 involves quite a bit of work and additional expenses. Do you think it’s worth the effort?  Surviving spouses of those who died in 2011 and 2012 have that decision to make. The problem is, there’s not an easy answer.  For those who don’t know what the question is, here’s a quick summary: Current estate tax law allows a surviving spouse to use any part of the $5 million exclusion from the estate tax that was available to their deceased spouse but not used by that spouse.  For example, if your spouse died in 2011, and their part of the estate was $1 million, you could use that extra $4 million dollars of unused exclusion to further reduce any estate tax due at your death. Your spouse’s exclusion would be portable to you. Except. There’s always an except. And this time there are couple of them, and they’re all pretty big:

  • In order to make use of that exclusion, you do have to file an estate tax return nine months after your spouse has died.
  • Estate tax returns require a detailed accounting of all of your spouse’s assets, which costs money and takes time to prepare.
  • Once filed, the IRS can examine, without any limitation period, a deceased spouse’s estate tax return to adjust the amount of the deceased spouse’s unused exclusion amount passing to the surviving spouse. 
  • There’s no guarantee that the additional, portable, exclusion will actually be available to you when you die, unless you die in 2012, because the current law expires in 2013.

In the end, you have to decide whether the time and cost involved are worth the potential tax savings down the road. For some people it is; for many, it isn’t.


Do I Have To Report A Gift to the IRS?

Dear Liza, My Dad recently gave me a gift of $13,000. Do I have to report this on my income tax return next year? Nope. Gifts are not considered ordinary income under the US tax code. So, you don’t have to report the gift. If there’s any tax to be paid, it is paid by the gift-giver (in tax-speak, the ‘donor’), not by the recipient (in tax-speak, the ‘donee’). However, your very nice Dad just gave you the maximum amount that he can give to any one individual each year without having to report the gift (in tax speak, this is an ‘annual exclusion gift’), so you are both completely within the law, and the transaction is entirely tax-free. Nicely done!

Should I Put My Son’s Name on Title?

Dear Liza,, Within a month I’m going to have a closing on a duplex house in NJ.   If I want my son to live there and manage it for us (since he lives in NJ) should I put his name in the title also?  If somebody sues him for any reason can they go after the house if his name is included in the title?  Is there any legal differences whether his name is included in the title or not?  Short answer: YES!  If you put your son’s name on title to the duplex, you are making a taxable gift to him equal to the value of percentage of the property you put in his name. You and your wife can each give him $13,000 free of gift tax ($26,000) total per year. But if the property is worth more than that, which it probably is, you’ll have to file a gift tax return by April 15th of the year following the gift, reporting the value.  Currently, you and your wife can each make gifts of up to $5 million, so you’re most likely not going to owe any gift tax on this transaction, but by reporting it, you’ll be using up a part of that lifetime gift tax exclusion. And yes, certainly, if his name is on title, creditors can go after his percentage ownership of that property.  Finally, if you put him on title now, his basis in that property (for the share that he would own) will be the original cost of the property; if, instead, he inherits it upon your death, his tax basis in that property will be stepped up to it’s then current market value (which means no capital gains tax if he sells it at that time).

Giving money to grandkids

Dear Liza: My Dad wants to start giving money to my children each year. Should I to hire a lawyer to draft a trust for this money? That’s so nice of your Dad. And smart, too. He can give $13,000 each year to each of your children (twice that if he’s married and his wife wants to make such gifts), free of any gift tax. Over time, this can really add up. Lucky you. So, here are your Dad’s choices: if he wants to keep it really simple, your Dad can give the money to your kids and you can set up a custodial acccount at a local bank or brokerage company. This is sort of like a generic, off-the-rack trust, established by state law, with standard terms. In many states, a custodial account lasts until a child reaches the age of 21. Before then, the custodian (probably you) can use the money for the minor (school tuition, summer camp, computers). At 21, the money is the child’s money and they can use it for whatever they would like to use it for (trip to Paris; race car business; college). If your Dad wants to limit the use of this money to just college, he can make these gifts to 529 Plan accounts in your children’s names. This money grows tax-free; and can be withdrawn tax-free, provided it’s used for an approved educational expense (like college). If your Dad would like the money to remain in trust past the age of 21, or would like to restrict its use to only certain things: only to buy a house after the age of 30; only for travel to exotic destinations; to stay in trust until a child is 35, that’s when an attorney should get involved. A custom-drafted trust can have restrictive terms and last for as long as the person who establishes the trust wants it to last.

Transfer on death accounts and debts

Dear Liza, I am a single male in my sixties. I do not own any real estate property and almost all of my financial accounts are TOD accounts.  I intend to leave my estate to my three adult children.  I have a small stock portfolio and some personal property that I will list in my will. Would  any estate taxes and outstanding debts be paid from the TOD financial accounts I have before the accounts are released to my beneficiaries or would only the stocks and personal property be liquidated to pay the amounts owed? What would happen if there is not enough in my residual estate to cover any outstanding debts? First off, a Transfer on Death (TOD) account is a bank or brokerage account that has a designated beneficiary, who receives the account upon the death of the account owner, without the need for a probate. It’s a great vehicle for passing assets to adult children, especially when, as in your case, you own no real property. (In most states, there’s no way to make real property pass this way, with a transfer on death deed, which is why living trusts are used to avoid probate.) As for debts, if they are unsecured debts (like credit card debts), your heirs are not responsible for paying them. However, the creditors can go after the assets that your heirs inherited from you to pay these debts–it’s just that it usually isn’t worth it to them to do so.  Estate taxes are different–those accounts are part of your taxable estate (you owned them at death) and the heirs would be responsible for paying tax due on these. However, at the moment, you can pass up to $5 million dollars, free of the estate tax, and it doesn’t sound like you (like most people) don’t have that kind of an estate. Here’s a good resource to learn more about this.

Surgery and Procrastination

So, I have a weird job in that I, literally, talk to people about getting their estate plans up to date many times a week. And I’ve done this for TEN YEARS. Over and over, people tell me that they’ve been procrastinating and feel badly that they haven’t gotten things taken care of. And I listen. In fact, my first question is almost always what prompted my clients to finally make the appointment and get the job done. It’s almost always one of these four things:

  • An upcoming trip.
  • A scary diagnosis or test.
  • The birth of a child.

Let’s face it, these are the things that get our attention in a deep way. They make mortality real and make us want to do what we can to get things in order. Until something like this grabs us, there are always 200 other ‘important’ things to capture our time and energy.

And here’s my confession: despite my professional focus on estate planning, my family’s estate plan has been out of date for at least four years! Really. Our guardian got divorced; her kids grew up to not get along with mine; our financial situation changed drastically. Every single thing about the plan wouldn’t work.



Believe me, I get it if you can’t focus on estate planning right this second. But, please, next time life reaches out and grabs your attention, jump on it. You’ll feel better, I can almost promise.


Joint Accounts and the Estate Tax
