Question 1: What is the GST?

GST stands for generation-skipping tax, or sometimes as it is referred to, the generation-skipping transfer tax. It is a federally imposed tax that applies when people transfer wealth from one generation to another that is at least two generations removed. Essentially, this means it applies when grandparents give gifts to their grandchildren or great-grandchildren.

Question 2: How does it work?

The GST is similar to both the estate tax and the gift tax. When the grandparent transfers wealth after he or she dies, that transfer can be subject to the estate tax if it is over the exemption limit. Similarly, grandparents who transfer wealth to their family while they’re still alive by giving gifts can also be taxed through the gift tax if such gifts are also over the exemption limit.

Question 3: When does it apply?

The GST is designed to apply in instances where grandparents try to skip or avoid paying estate taxes. For example, a grandparent typically leaves an inheritance to a child. If that inheritance is over the exemption limit, it is subject to the estate tax. Then, when the child dies and leaves that inheritance to his or her own child (the grandchild), that too is subject to estate tax. The GST applies when the grandparent tries to avoid the first estate tax fee by transferring the inheritance directly to the grandchild.

Question 4: Do I have to worry about the GST?

Probably not. It only applies in very limited circumstances and only to estates of significant worth. However, the exemption limit is likely to change significantly in the coming year, so you may need to consult your estate planning attorney to see if the new limit now applies to you.

The Law Office of Michael Robinson, P.C. is a member of the American Academy of Estate Planning Attorneys.

Estate planning attorneys have been preparing for the end of 2012 for quite some time. No, it has nothing to do with what some people claim will be the end of the world according to the Mayan calendar, but rather the expiring of the $5.12 million gift tax exemption that ends on December 31, 2012.

As the law stands right now, individuals are allowed to give up to $5.12 million in estate gifts without those gifts being subjected to additional taxes. Come January 1, the $5.12 million exemption will be reduced to the traditional $1 million exemption. This represents a significant change in estate and gift taxes, which is why estate planning attorneys are expecting to work extra hard during the final months of the year.

Taking advantage of the gift tax exemption, however, often requires months of preparation. This means that if you wait until the end of the year, you may already be out of luck. Under the current laws, individuals can give up to $13,000 per year to other individuals as gifts. As long as the lifetime total of such gifts does not exceed $5.12 million, those gifts will not be taxed.

Once the new $1 million level takes effect, gift taxes over the $1 million amounts will be subject to a 50% taxation rate.  Anyone with any significant amount of assets should schedule an appointment with their estate planning attorney as soon as possible to begin give tax planning.

The Law Office of Michael Robinson, P.C. is a member of the American Academy of Estate Planning Attorneys.

The new year is our annual reminder to do the things we should have done in the previous year, as well as get ahead and make plans for the future. If you haven’t already done so, you should review your estate plan and set up a meeting with your estate planning attorney if you see any changes that need to be made.

Step 1: Update your documents. If this past year had you go through family or financial changes, you’ll want to address these in your estate planning documents. If, for example, you have a new child or grandchild, you’ll want to make sure you address this in your will.

Step 2: Review your estate in light of the tax implications. Federal estate tax exemptions and rates may change after 2012, though for now at least it appears the $5 million individual exemption is still in effect.  The New York estate tax continues to apply to estates exceeding just $1 million in value.  If you and your spouse have assets worth more than $1 million and haven’t already done so, you should consult an estate planning attorney to ensure your estate is as protected as possible.

Step 3: Speak to your family. Discussing your estate planning wishes with your family is especially important if you’ve made changes to your living will or health care proxy in the past year. Even if you haven’t made changes, you can discuss your own wishes and urge your family members to begin their own planning efforts. It’s never too soon to start, but it can very quickly become too late if you wait too long.

The Law Office of Michael Robinson, P.C. is a member of the American Academy of Estate Planning Attorneys.

Did you know that you may qualify for no-cost tax assistance through the Internal Revenue Service’s Volunteer Income Tax Assistance programs? Known as VITA, the federal Volunteer Income Tax Assistance program allows you to visit a local tax assistance center to receive free tax assistance. IRS tax volunteers receive certified tax assistance training to help you file your annual federal income taxes. Offered during certain times of the tax season, you may be able to visit a VITA tax clinic and receive limited income tax assistance. Generally, tax help is available to elderly, disabled and low-income taxpayers with limited annual incomes. You may have to bring identification or certification of an existing disability.

You may also be able to qualify for the federal Tax Counseling for the Elderly program offered by certified IRS tax volunteers. The AARP also trains volunteers through the IRS tax certification programs to provide their elderly colleagues with specialized tax assistance. Typically, free tax assistance is available to elderly taxpayers who are at least 60 years old and disabled. You may have to show your qualify free tax assistance by providing proof of disability.

The VITA tax clinics offer limited assistance but are a great resource to help you understand which forms you must fill out. Did you know that if you receive Social Security disability benefits, you may not have to file your tax returns? However, you may want to file your tax returns to qualify for special tax credits or deductions. According to the IRS, if you qualify as a permissible tax filer, you are not required to file your annual income tax returns, but you may voluntarily file your returns to qualify for overlooked deductions or to take advantage of federal low-income tax credits.

Because many of these public interest programs are only available to low-income and elderly taxpayers, it is important to prove asset eligibility. Certain assets are exempt from income, including Medicaid assets. An attorney can help you understand the importance of calculating excluded income for tax purposes and for general public welfare program participation purposes. Understanding which assets are includable as income for Medicaid eligibility requires a thorough understanding of federal laws.

The Law Office of Michael Robinson, P.C. is a member of the American Academy of Estate Planning Attorneys.

Many people learn of the $13,000 annual gift tax exclusion and worry about gift taxes.  In most cases, and unless you’re extremely wealthy, this worry is unnecessary.  We’ll explain why below.

• You are Not Limited to Gifting $13,000 Per Year

The $13,000 annual gift tax exclusion is just one way to pass assets without paying gift taxes.  In fact, this exclusion allows you to give away an unlimited amount of assets, so long as you spread the wealth and don’t give more than $13,000 to any one individual in each calendar year.

If you’re married, you can “split” gifts, meaning that you can pass $26,000 to as many individuals as you and your spouse would like in each calendar year.

A special exception to the annual gift tax exclusion is the funding of a 529 plan.  The special rule allows you to fund 529 plans, for as many individuals as you would like, with 5 years’ worth of gift tax exclusion.  This means that each 529 plan can be given $65,000 (or, $130,000, if you are married) in one year, but you must then wait 5 years to use this exclusion for that beneficiary again.

• Tuition and Medical Fees are Unlimited

If you pay the fees directly to the provider (and not to the individual receiving education or medical services), you will not incur gift taxes no matter how high the bills or the number of beneficiaries.

• $5,000,000 in 2011 and 2012

In addition, you have a lifetime unified credit exemption that you can give away during your lifetime (or, at your death) and not incur gift taxes.  The amount in 2011 and 2012 is $5,000,000 per individual (or, $10,000,000, for a married couple.)

If you’re one of the few who can give away more than $5,000,000/$10,000,000, a qualified estate planning attorney can show you how to leverage gifts.

If you have concerns about the gift tax, consult with a qualified estate planning attorney.

The Law Office of Michael Robinson, P.C. is a member of the American Academy of Estate Planning Attorneys.

When you are planning your estate, one of the first things to take into consideration is your exposure to the estate tax. Many people who are just beginning to delve into the subject are taken aback when they hear the details. Right now, the top rate of the estate tax is 35%. If that sounds like a lot, consider the fact that it was 45% in 2009, before the one-year repeal in 2010.

And, if no new legislation is passed in the meantime, the maximum rate of the estate tax is scheduled to go up to 55% in 2013. No, that is not a typo; the estate tax will consume more of the taxable portion of your estate than you heirs will receive.

The question of whether or not you need to be concerned with estate tax exposure revolves around the overall value of your estate relative to the estate tax exclusion at the time of your death. Right now, the estate tax exclusion sits at $5 million, but it is scheduled to go down to just $1 million in 2013, as the rate of the tax goes up.

A logical step to take to gain estate tax efficiency would be to give gifts to your loved ones while you are still alive, and there is a $5 million lifetime gift tax exemption. But, it is unified with the estate tax exclusion. So, you can’t give gifts totaling $5 million tax-free and then have the first $5 million of your estate pass free of the estate tax. You have a total exemption of $5 million for both gifts and the legacy that you leave behind after you pass away.

To gain an in-depth understanding of how to respond to these federal levies, simply contact an experienced estate planning attorney to arrange for a consultation.

The Law Office of Michael Robinson, P.C. is a member of the American Academy of Estate Planning Attorneys.

While the Federal estate tax has been in the news lately, many do not realize that New York State has an estate tax as well, as do several other states in the country.  If you are a New York resident and your estate is valued at $1,000,000 or more, then your estate plan may need to address this tax burden.  In addition, residents of other states who own real estate and/or tangible personal property located in New York, may also be subject to New York estate taxes.

There are a number of estate planning tools that New Yorkers may use to reduce estate taxes. These tools include:

• Lifetime gifting up to $13,000 (in 2011) annually per person;
• Creating trusts such as ILIT’s – Irrevocable life insurance trusts or QPRT’s – Qualified personal residence trusts; and
• Using the unlimited marital deduction, which allows transfers to surviving spouses with no taxes, although this can ultimately increase the tax burden of the surviving spouse’s estate.

Generally, the estate tax is based on the value of the estate’s assets on the date of death. This means the tax is calculated as a percentage of the value of the assets, which are then reduced by allowable deductions, exemptions, and credits. New York’s estate taxes are based on a graduated rate schedule of up to 16%.

An estate planning attorney can help you put together a comprehensive estate plan that not only can address estate taxes, but one that will meet your family’s specific needs.

The Law Office of Michael Robinson, P.C. is a member of the American Academy of Estate Planning Attorneys.

One of the goals of estate planning is to minimize the burden of your passing on your loved ones.  For some families, one burden that needs to be addressed is estate taxes.  While the 2011 Federal tax exemption was recently set at $5,000,000, this amount is set to expire at the end of 2012, when the exemption is lowered to $1,000,000 for 2013.

While this may sound generous, considering the contents of an estate including your home, investments, retirement accounts and more, there is still a need to minimize your estate’s tax burden.  Some popular estate planning tools to do this:

1.  Unlimited marital deductions

Federal tax law permits you to transfer assets to your spouse without incurring gift or estate taxes, regardless of the amount. This is not always the best course of action, however, as these deductions may increase the total combined federal estate tax liability of the spouses upon the death of the surviving spouse. To avoid this problem, many couples choose to establish a bypass trust.

2.  Bypass trusts

Bypass trusts, also known as credit shelter trusts, allow married couples to take advantage of the marital deduction, while using the federal estate tax exemption to its fullest.

With a bypass or credit shelter trust, the first spouse to die can leave the amount shielded by the federal exemption to the trust. The trust can provide income to the surviving spouse for life, then upon the death of the surviving spouse, the assets are distributed to trust’s beneficiaries.

3.  ILIT’s – Irrevocable life insurance trusts

Life insurance trusts may be designed to keep the proceeds of a life insurance policy out of your estate and give your estate the liquidity it needs.  To avoid inclusion in your estate, such trusts must be irrevocable, meaning that you cannot dissolve the trust, or change the terms. With proper planning, the proceeds from the policy held by the trust may pass to trust beneficiaries without estate taxes.

4.  Lifetime gifting    

Federal tax law generally allows each individual to give up to $13,000 annually to another individual without paying gift taxes, subject to certain IRS restrictions, of course.  This allows you to transfer some of your wealth during your lifetime to reduce your taxable estate.

5.  Charitable donations

Charitable gifts are not taxed as long as the contribution is made to an organization that operates for religious, charitable or educational purposes. Make sure the organization you want to give money to is an eligible charity according to the IRS. You or your estate may be entitled to a tax deduction for contributions to a qualifying charity.

Work with an estate planning attorney to determine the best tools to meet your family’s specific needs.

The Law Office of Michael Robinson, P.C. is a member of the American Academy of Estate Planning Attorneys.

Just before the holidays, Congress passed the new law pertaining to estate planning and estate taxes for 2011. So what does the law hold for this year?

On January 1, 2011, the federal estate tax returned. Estates valued at $5 million or less are exempt from the estate tax. Estates valued at more than $5 million are subject to a 35% estate tax rate. While this may seem generous on the federal level, don’t forget that nearly half of the states impose their own estate or inheritance tax, including New York, beginning at much lower levels.

The stepped-up basis on inherited property also returned, meaning the basis for inherited property is its fair market value on the day of the owner’s death. Why is this important? If an heir were to sell that property, their capital gain would be determined on their selling price less the fair market value (with allowable expenses) on the date of death, meaning the capital gain normally would be much less than having to use the carryover basis, which is often the price that the deceased paid for the property plus the value of certain improvements.

For example: For estate planning and inheritance purposes, the carryover basis for stocks and bonds is the purchase price; the stepped up basis is the value of the stock on the day of the death.

Because of the late changes in tax law, certain tax filers will have to wait until mid to late February to file their tax returns, as the IRS is still updating their computer systems with the changes. In addition, the new estate tax laws are set to expire in just two years, at the end of 2012.

So how do these changes impact your estate planning tasks? Changes to tax laws, along with life changes such as marriage, divorce or birth of a child, should trigger a review of your estate planning documents. Working with an estate planning attorney ensures that your plan is kept up to date regarding the current law, as well as your current needs and goals.

The Law Office of Michael Robinson, P.C. is a member of the American Academy of Estate Planning Attorneys.

Tis the season for estate planning. While it would seem that the holidays would not be the ideal time to discuss an estate plan and estate taxes, it is the end of the year and there is time to consider a gift that can further your estate plan.

In 2010, due to the lapse in the federal estate tax provisions, you are permitted to gift up to $13,000 to any one person without paying gift taxes and without impacting your $1 million lifetime gift exemption. Gifts of over $13,000 will be taxed at the current gift tax rate of 35%, which increases to 55% on January 1, 2011.

So what is permitted to be gifted under estate tax guidelines? A gift is property, and this includes cash, or the use of income from property, without expecting to receive something in return. This means if you sell something at less than its full value, or if you make an interest-free loan, you may be making a gift.

The IRS works under the general rule that any gift is a taxable gift; but, there are many exceptions to this rule. Generally, the following gifts are not considered taxable:

• Gifts, excluding gifts of future interests, that are not more than the annual exclusion for the calendar year,
• Tuition or medical expenses you pay directly to a medical or educational institution for someone,
• Gifts to your spouse,
• Gifts to a political organization for its use, and
• Gifts to charities.

Obviously using gifting as part of an estate plan can be complex, and also have an impact on other aspects of estate planning, such as Medicaid planning. Therefore, it is important that you work with a qualified estate planning lawyer to ensure that gifting will further your overall estate planning goals.

The Law Office of Michael Robinson, P.C. is a member of the American Academy of Estate Planning Attorneys.