Heritage Living Trust, Living Will Estate Planning Attorney Lawyer, Wills and Probate Law, Living Revocable Trust, Living Trust Will Form Living Trust, Family Living Trust, Living Medicaid Trust, California, Nevada, Texas, Florida, Arizona, Pennsylvania, Illinois, New York

Larry Baldwin Heritage Living Trust, Living Will Estate Planning Attorney Lawyer, Wills and Probate Law, Living Revocable Trust, Living Trust Will Form Living Trust, Family Living Trust, Living Medicaid Trust, California, Nevada, Texas, Florida, Arizona, Pennsylvania, Illinois, New York

Wednesday, September 8

Double Taxation... Poor Planning

Bad advice can be costly. Many legal and financial advisors have recommended "Joint Ownership" or "Joint Tenancy" as a way to eliminate Probate. While this advice is correct, in that it does avoid Probate, the aftermath of Joint Ownership can be devastating! You may find that Double Taxation will occur when you choose that method.

The first tax hits when you make another person (other than your spouse) a co-owner on your property. Whether it involves real estate or financial accounts, the mere act of placing their name on an account will likely create a Gift Tax liability. The IRS says you may gift $13,000 per year to as many individuals as you want without incurring a Gift Tax liability. Above the $13,000 per individual limit, the donor is assessed from 18% to 55% on all gifts in excess of those limits, or alternatively, you will begin to use up your estate tax exemption eventually leaving you with no exemption at your death.

For example, Dad put his son, John, on the deed so that John would receive the home without Probate costs and delays at his death. The home had a current value of $150,000. That meant that John received a $75,000 gift on the day Dad put him on the deed, and that is $62,000 over the Gift Tax limit for that year! Dad's gift caused a Gift Tax of over $12,000!

This should be reported on the donor's annual tax return, but most often no one thinks of this as a taxable gift and it is neglected on the tax return. If Dad dies, the burden of the Gift Tax falls to his son with all late penalties and interest costs. Several years later the tax bill could have grown to 300%-400% more than the original tax owed.

One attorney suggested that you could simply go back and claim the gift as a part of the Unified Credit against your $3,500,000 estate tax exemption. This misinformation is completely against IRS rulings. The Unified Credit must be declared in the year that it was made. The appropriate method would be for Dad to file an amended tax return and pay the Gift Tax, penalties, and interest.

In another example, it was suggested to an elderly depositor to put her daughter on her CD account in the event she became ill. The mother complied. The CD was $50,000 and that transaction created a $25,000 gift to her daughter. The Gift Tax limit was exceeded by $12,000, creating almost $2,000 in gift taxes. Even worse was the fact that the attorney had prepared a Will for her that named her three children equally.
At the mothers death, the daughter received her full one-third share of the estate PLUS the full $50,000 in the CD (remember that Joint Ownership avoids Probate). Since the daughter never gave any of the mother's CD (now in her name) to her brothers, this created hard feelings among the daughter and her two brothers and unfortunate discord in the family!