Tax and Estate Planning for 2014

Now that April 15th has passed (and you have hopefully filed your taxes or an extension), there are several important things that you should know for better estate and tax planning for the upcoming year. Knowing when to make proper gifts, as well as reviewing and updating old documents will better prepare you for 2014.

Every person can make gifts of $14,000 a year per person. This is called your annual exclusion amount. Gifts to each person under this amount do not require you to file a gift tax return. These gifts are cumulative throughout the year. You must file a gift tax return if you make cumulative gifts over $14,000 to any one person. However, even if you file the return, you will not owe gift tax if the amount is less than the $5.34 million lifetime exemption allotted to each person under federal law (an amount indexed over time). There is no state gift tax under North Carolina law. Hence you can give away up to $14,000 each year to as many friends or family members as you desire without filing a gift tax return; plus over your lifetime you can give away 5.34 million dollars without owing any tax, as long as you file a gift tax return when appropriate.

One of the biggest tax mistakes that people make is gifting “low basis” property (often their real estate) in an attempt to protect their assets. First, gifting property causes you to lose control of it. When you gift property to a child, that child could lose it to predators or creditors. Additionally, it is important to consider the consequences to your tax basis when making gifts. You may have purchased your house for $100,000 originally. This is known as your tax basis. Your house may have appreciated to $300,000 today. If you gift the property to your children, they will retain your tax basis and be forced to pay unnecessary capital gains taxes of 20% federal tax as well as state income tax when they sell the property. However, if you sold the house, you could avoid this tax, as owners can sell their primary residence for up to $500,000 in gain with no tax. Similarly, had the children inherited the house, they would have received a step-up-in basis to the fair market value at death of $300,000 and paid no capital gains tax on the house if they sold it after inheriting it. Gifting property can create significant burdens on loved ones. Visit a professional Elder Law attorney to avoid these types of tax implications.

It is important to have your estate and tax planning reviewed. Many people had estate tax planning done many years ago through a revocable trust or in their will. In the past several years, there have been significant changes in the law. As a result, many people need to have their documents reviewed and updated. Previously, the estate tax exemption was much lower, such that at death, many middle class families faced a hefty tax burden for relatively modest estates. Gradually over the last several years, the estate tax exemption has risen to $5.34 million per person (doubled per couple), so that few people have to worry about estate taxes today. At this point, people with old revocable trusts need to change their plans and focus instead on income tax planning. Those with an estate of $3 million or less should change their planning to reduce their income tax liability instead. Have your planning reviewed today by an experienced Elder Law attorney to see what options may be available to save on your income tax planning.

If you or your loved one needs assistance with tax and estate planning, or if you have questions about government assistance programs such as Medicaid or Veteran’s Benefits, consider W.G. Alexander & Associates – we offer a unique blend of asset protection, Elder Law and estate planning. You can also attend our free seminars, learn more through our website at, or call us at (919) 256-7000. Also, every Tuesday morning at 9 am, you can listen to our radio show, “Asset Protection Today,” on Talk Radio 850 WPTK (AM) with Attorney Bill Alexander.