When gifting property, gift and estate taxes are two different types of taxes applied to wealth transfers. A gift is when someone gives away property without getting anything back in return. An example of a gift is giving your car to your friend. Estate taxes apply to the transfer of assets after death. The recipient of the asset pays these taxes. The gift tax is a tax that the giver of the asset pays. It is usually charged at a rate of 35 percent. The estate tax is generally set at a higher rate, depending on the size of the estate. For example, estates worth $5 million or more are taxed at 40 percent. Estates worth $10 million or more are taxed 50 percent. This article has been drafted by John McGuire, a Denver tax attorney at The McGuire Law Firm, to discuss tax matters related to gifting.

Gift Tax vs. Estate Tax?

Gift taxes apply to gifts given throughout your life. Estate taxes apply to gifts you give after you die. Both types of taxes are essential for many reasons. For example, you’ll owe gift taxes if you give away $10,000 worth of property while alive. If you give away $10 million worth of property after you die, the government will receive that money as income. That means you’ll owe estate taxes on that amount. These taxes are significant because they affect what you can leave behind for loved ones after you pass away.

Gift Tax Policy

The gift and estate taxes were initially designed to discourage people from transferring wealth to heirs at death. However, many people still try to avoid paying the estate tax. For example, people may give gifts to relatives instead of selling property. Or they may transfer property ownership to shell companies not subject to taxation. These actions allow them to pass on their wealth while avoiding the estate tax.

Estate Taxes

The federal estate tax applies to property transfer at death in the United States. The estate tax is imposed on the first $11.58 million of an individual’s estate. The estate tax rate is 40%. The combined estate and gift tax threshold for married couples filing jointly is $22.4 million.

Real Estate Gift Tax

However, the basis is a little trickier regarding a property with loss. When the donor has a basis in property greater than the fair market value and chooses to transfer it as a gift, the donee does not simply take the donor’s basis. This is a situation where there is a built-in loss at the transfer time. In other words, if the donor has a basis higher than the actual value at the time of the gift, more basis concerns must be considered upon the following disposition.

For instance, if the donor has a basis in the property of $50,000 and the fair market value at the time of the gift is $40,000, the donee will wait until the latter disposes of the property to determine his basis for gain or loss purposes. If the donee later sells the property for $30,000, then under §1015, the donee will take a basis equivalent to the fair market value of $40,000. This would allow the donee to recognize a loss of $10,000 rather than $20,000 if he had taken a basis equivalent to the donor’s basis.

The Capital Gains Tax Over The Long Term

For example, Joe’s parents bought the house when he was born. He will inherit the house if his parents die before him. But, because the house was purchased at a discount, Joe will get less money than his parents paid.

Joe will receive a gift when he sells his house. If he doesn’t give away the house, he will owe taxes on the difference between what he sold the house for and what he gave away. He will also get a larger tax deduction if he gives away the home.

Stay Informed About Gifting

When you give someone else your property, you may not realize there could be unexpected taxes or other financial implications. Before giving away anything, consider what happens when you pass away. You might need to pay inheritance taxes if you leave behind a large amount of money. Or you might need to pay capital gains taxes if you sell the item. If you plan, you can avoid any problems.

You can speak with a Denver tax attorney and Denver business attorney by contacting The McGuire Law Firm.

Estate planning is about protecting yourself, your family, and your loved ones against potential problems that could arise after you die. Estate planning includes creating a will, establishing trusts, making medical directives, and choosing guardianship over minors. Having a valid will is essential if you don’t do anything else.

You might think you’re too young to worry about estate planning, but you probably are not. A recent study found that nearly half of Americans haven’t done anything to protect themselves financially. And while most people understand the importance of saving money for retirement, fewer than one in four have a savings account.

If you want to ensure that your family gets what you want and deserve after you die, you owe it to yourself to take action.

Is My Estate Plan Good Enough?

Whether you want to protect your home, your family, or both, there are many ways to accomplish this goal. Estate planning is one of those things that people do without really thinking about it. But the reality is that having an effective estate plan helps ensure that you can pass your wealth to your loved ones while protecting yourself against probate court proceedings. In addition to ensuring that your wishes are carried out upon your death, estate planning allows you to take advantage of tax benefits and reduce the amount of money you pay in taxes during your lifetime.

The most important thing to remember about estate planning is that it doesn’t have to be complicated. There are three basic steps involved in creating an estate plan:

1. Determine Your Goals

2. Create Your Plan

3. Implement Your Plan

I Have A Living Trust, Do I Need A Will?

A living trust is one way to avoid probate while transferring assets to beneficiaries upon death. If you have a living trust, you may still need a will. But what happens if you don’t have a will? What if you die without having established a trust?

You may still need a will because assets that are not in your living trust that do not include beneficiary designations or are owned solely by you may still be subject to estate taxes. And if you fail to transfer those assets into your trust correctly, they could become part of your estate and be subject to probate and administration fees.

In addition, if you have a will, it may provide guidance about how you want your assets distributed among your heirs. Without a will, however, there is no specific distribution plan. Sometimes, a court may distribute assets according to state intestacy laws. These laws vary widely across states.

What Is Probate?

What is probate? Probate is the legal procedure used to resolve issues surrounding the distribution of the deceased estate. In simple terms, it involves the formal transfer of property owned by someone who died without a will into the hands of their beneficiaries. This occurs after the court determines what happens to the deceased person’s assets upon death.

The probate process includes validation of wills, payment to creditors, distribution of assets to heirs according to the terms of the will, and a third-party mediator to settle disputes. In some cases, there are no heirs; in others, there are multiple heirs, and the court must determine how the assets should be distributed among them.

With A Small Estate, Should I Still Consider Probate?

Probate is the legal process for distributing assets upon someone’s death. This includes real property, personal property, bank accounts, and life insurance policies. However, it does not apply to certain types of trusts, such as charitable remainder trusts, irrevocable life insurance trusts, and revocable living trusts. Probate is required even if no beneficiaries are named in the deceased person’s will. If you die intestate without a valid will, your state’s laws determine what happens to your assets.

In general, probate proceedings take longer and cost more money than administering a simple estate. For example, the average cost per hour for lawyers performing probate work is $250, compared to $150 for estate administration. Also, the process involves many steps, including filing paperwork, obtaining court approval, having witnesses sign affidavits, paying fees and taxes, and waiting for the courts to make decisions.

The good news is that most people don’t need a lawyer to handle probate. Many states offer simplified probate procedures that allow individuals to administer their estates. Some states require only one form to file for estate administration and probate. Others provide online options, allowing anyone to complete and submit forms electronically. These streamlined processes typically save families thousands of dollars over traditional probate.

However, probate still applies to all wills regardless of whether the estate is large or small. And, probate is always required if someone dies without a valid will.

Types of Trusts

A trust is a legal arrangement where one person manages another person’s property. You can set up a trust for yourself, others, or both. There are three types of trusts: revocable, irrevocable, and testamentary. Each type has different requirements and benefits. Revocable trusts allow you to change the terms of the trust whenever you want. Irrevocable trusts cannot be changed once established. Testamentary trusts give you control over what happens to your property after you pass away.

Charitable Remainder Trusts

A charitable remainder trust allows donors to give away money today without paying taxes on it now. In exchange, the donor receives an annual payment during their lifetime, plus the chance to designate how much goes to charity upon their death.

The trust is similar to a living trust, except that it offers donors a way to receive an income tax deduction, freedom from capital gains taxation, and the possibility of avoiding estate taxes. When the donor dies, the trustee distributes to designated charities according to instructions left in the trust document.

How the McGuire Law Firm Can Help

The McGuire Law Firm provides a full range of personalized trust services, including trusts, wills, powers of attorney, tax advice, insurance, and retirement plans. We are here to ensure you and your family are financially protected, whether during life or after death.

We offer a variety of services to meet your individual needs. Our experienced Denver Tax Attorneys are ready to assist you with estate planning, asset protection, and long-term care planning.

Don’t hesitate to contact The McGuire Law Firm today to learn more about our trusted solutions. Call us at 720-883-7705.

– Will and Last Testament

– Living Will

– Medical Power of Attorney

– Financial Power of Attorney

– Revocable Living Trust

The above estate planning documents could be considered common documents that you would discuss with an estate planning attorney.  You can contact a Denver estate planning attorney at The McGuire Law Firm in Denver, Colorado or Golden, Colorado.  The McGuire Law Firm provides a free consultation with an estate planning attorney in Denver to discuss your estate planning questions and needs.  The video below has been prepared to provide additional documents regarding common estate planning documents.

Contact The McGuire Law Firm to speak with a Denver estate planning attorney!

Schedule a free consultation with an estate planning attorney in Denver, Colorado- 720-833-7705.

The video below has been prepared to further discuss this issue.  To speak with a Denver estate planning attorney, you can contact The McGuire Law Firm.

Contact The McGuire Law Firm to speak with a tax attorney in Denver- 720-833-7705.

Certain states will recognize the doctrine of a condition gift.  If your applicable state does recognize the doctrine of a conditional gift, the conditional gift transfer can be incomplete for gift tax purposes.  General property law principals would hold that a gift is complete and irrevocable upon completion of the transfer and acceptance by the donee (individual receiving the gift).  Under the conditional gift doctrine, a “gift” however can be subject to a condition and thus the initial transfer would not be deemed a completed gift for purposes of state property law if in fact the condition is not satisfied.  Thus, if the gift is not a completed gift under state law, it may not be a completed gift for federal tax purposes- estate tax and for purposes of your estate planning.  In terms of cases dealing with this issue, see Ver Brycke v. Ver Brycke, 379 Md. 669, 84 A.2d 758 (Md. 2004).

Gifts by minors bring certain questions and issues into consideration as well.  Because a minor is legally incompetent, a minor makes a gift and transfers property to another person the transfer may be disavowed by the minor, and the ability to disavow could cause the gifted property to go back to the minor who gifted the property.  Thus, is this a completed gift when a minor transfers property?  A gift by a minor is incomplete for federal gift tax purposes if under the applicable state law, the gift can be reverted back to the donor for a reasonable time after the minor has reached the age of majority in the applicable state.  Under these circumstances, the gift from the minor would be considered complete when the minor’s power disavow the gifted property lapses and the minor can no longer “take back” the property.

If a grantor has made a unilateral mistake of fact or law, a gift into trust can be considered incomplete if state law would allow for the revocation  For example, if a donor incorrectly transferred the incorrect (or unanticipated) amount of property, the transfer could be considered incomplete and not subject to gift tax.  However, it is important to note that a mistake as to the tax consequences of a gift will generally not allow the gift to be considered an incomplete gift.

The gifting of property can be an important part of estate planning, but has many tax implications and issues to consider.  Thus, it is important to discuss gifting issues with an estate planning attorney or tax attorney.  You can speak with a Denver estate planning attorney and tax attorney by contacting the McGuire Law Firm.

Contact The McGuire Law Firm to schedule a free consultation with a Denver tax attorney and estate planning attorney!

IRC Section 1014(e) prohibits a step up in basis in regards to appreciated property that was acquired by the decedent via a gift within one year of their death.  Thus, section 1014(e) would provide for a carryover basis for such property.  Section 1014(e) specifically states: In the case of a decedent dying after December 31, 1981, if: (A) appreciated property was acquired by the decedent by gift during the 1 year period ending on the date of decedent’s death, and (B) the property is acquired from the decedent (or passes from the decedent to) the donor of the property (or the spouse of such donor), the basis of the property in the hands of such donor (or spouse) is the adjusted basis of the property in the hands of the decedent immediately before the death of the decedent.  Appreciated property is defined as “any property if the fair market value of such property on the day it was transferred to the decedent by gift exceeds its adjusted basis.”

By requiring that the donee spouse survive for at least one year after the transfer, IRC Section 1014(e) limited the ability of a tax free transfer to a terminally ill spouse and then the receipt of such property upon the death of the terminally ill spouse with a step up in the basis of the property.  Moreover, the Internal Revenue Service has also ruled that IRC Section 1014(e) will apply to portions of property that are held in a joint revocable trust funded with assets that were held by the grantors as tenants by the entireties.

In 2001, the Economic Growth and Tax Relief Reconciliation Act repealed Section 1014, and a carryover basis position was implemented under IRC Section 1022.  This code section will (or may) apply to decedents passing after December 31, 2009.  IRC Section 1022 holds that property received from a decedent is treated as if received via a gift, thus the recipient of the gift would have a basis equal to the lesser of the decedent’s adjusted basis of the fair market value as of the date of death.  Thereafter the 2010 TRA did reinstate the estate tax and fair market value basis at death provisions, and repealed the IRC Section 1022 carryover basis for decedents passing after 2009.  Thus, the provisions and application within these code sections can be confusing, and it is important to understand the history.  Again, when looking at the application of these sections and provisions, you should always consult with your estate planning attorney and/or a tax attorney or tax professional.

If you have tax questions or questions related to your estate plan, contact The McGuire Law Firm to speak with a Denver estate planning attorney or tax attorney.  The McGuire Law Firm provides a free consultation with an estate planning attorney and tax attorney in Denver, Colorado.

When a survivor acquires property from a decedent prior to death, and the property is included within the decedent’s estate at fair market value when calculating estate tax, the survivor’s basis may be reduced by the amount of depreciation taken by the survivor when calculating taxable income.  The code section to reference regarding this issue is Internal Revenue Code Section 1014(b)(9).  Thus, when a co-owner of property has received benefits from depreciation on the property acquired and eventually obtains complete ownership, the properties basis in the hands of the survivor will be lessened by the depreciation benefit received before the co-owner’s death.

In most jurisdictions, two joint tenants are entitled to one-half of the income and charged with one-half of the expenses.  Thus, upon the death of the first tenant the surviving tenant’s basis in the property would be reduced by one-half of the depreciation allowed during the time the property was owned in joint tenancy.

An example may help illustrate this matter.  In 2010 X and Y purchase depreciable property for $100,000.  Over four tax periods, from 2010 through 2013, depreciation of $10,000 is taken each year totaling $40,000, and Y passes away in 2013 when the property had appreciated to $120,000.  X’s basis in the property would be $100,000.  This is the full value of the property included in Y’s estate of $120,000, less $20,000, which is X’s share of the total depreciation taken during the time the applicable property was jointly owned.

Understanding and calculating basis can be complicated and require the maintenance of tax returns and other documents.  But again, we care because you must be able to accurately calculate basis to accurately calculate the gain or loss upon the sale or disposition of an asset.  If you  have questions related to the basis of an asset, you can contact a Denver tax attorney at The McGuire Law Firm to discuss these matters.  Further, The McGuire Law Firm assists clients with certain estate planning matters, and you can discuss the transfer of certain assets with an estate planning attorney if needed.

Contact The McGuire Law Firm to schedule your free consultation with a tax attorney in Denver, Colorado.

When a donor gifts property, whether the gift is into a trust agreement or otherwise is incomplete to the extent the donor has the right or reserves the right to revoke the transfer.  The ability to revoke the transfer or revocation power could be a directly expressed or implied based upon the facts and circumstances.  If a transfer is subject to a revocation power, the transfer or gift becomes complete only when the donor’s power to revoke the gift has terminated or has been relinquished.

As stated above, the power to revoke can be implied if a trust agreement indicates that the donor, in essence has reserved the power to revoke.  One court case within the United States Tax Court, In Mandels Est. v. Commissioner, 64 T.C. 61 (1975), the court determined that the grantor’s initial transfer into the trust agreement was not a complete gift because a gift into trust was revocable under state law (New York State law).  The court made this determination even though the trust agreement did not expressly provide for a revocation power.  However, within the trust agreement, the donor maintained the majority of the elements one would consider regarding incidents of ownership over shares of the stock of a closely held corporation that were transferred into the trust.  In Mandels, the trust agreement specifically prevented the trustees from selling, transferring, pledging or encumbering the stock.  Furthermore, the trustees could take no action or proceedings regarding the stock of the closely held corporation.  Furthermore, the donor (trust grantor) retained the rights the stock dividends as well as redemption and liquidation proceeds, as well as the right to vote the shares.  Thus, under these circumstances, the donor or grantor had retained too much power, or the implied ability to revoke the transfer and thus the gift was deemed incomplete.

A gift that is deemed incomplete may impact an individual’s overall estate plan and estate or gift tax consequences.  Thus, it is important that you consider these issues with your estate planning attorney and tax attorney when drafting estate planning documents.  You can speak with a Denver estate planning attorney and tax attorney by contacting The McGuire Law Firm.