ElderLaw News

ElderLaw News is a weekly e-newsletter that brings you reports of legal developments and other trends of vital interest to seniors and their advocates. This newsletter is brought to you by The Estate Planning & Elder Law Firm, P.C., William S. Fralin, Esq., President.

Family Generosity and the Gift Tax

A recent New York Times article highlighted the potential gift tax implications for baby boomers who are subsidizing parents or less fortunate siblings.

Most gifts can easily fall within the donor's annual gift tax exclusion of $12,000 in cash or other assets per donee. There is also a lifetime exemption of $1 million ($2 million for married couples) before a 45 percent gift tax applies.

There are several strategies that donors can use to assist family members without paying gift tax:

-- Maximize use of the annual exclusion. You can do this by writing a check, but you can also put assets (including income-producing assets such as bonds or shares of a closely held company) into trusts for the benefit of the family members. You can also use Section 529 education savings plans to assist siblings burdened by the costs of their children's education.

-- Pay medical and educational expenses for the family members. You do not need to use your annual exclusion to pay for these expenses, but you must pay them directly to the providers of the services. This strategy can be helpful with regard to elderly parents. You can pay for anything that the parents would be allowed to deduct on their income tax returns as an unreimbursed expense. This includes home-care attendants, medically necessary home improvements, or part of the parents' long-term care insurance premiums (up to $3,080 for someone 61 to 70 years old, and up to $3,850 if over 70).

-- Employ family members. You can employ family members to provide such things as child care, managing real estate, or handling the books, but the compensation must be reasonable (what you would pay a stranger for the same work).

-- Lend and borrow money. This requires the same formalities of a loan from a bank, but you must use the applicable federal rate. This is a minimum interest rate set by the Treasury each month. You could also borrow money from family members and pay them more interest than they could receive from money markets or bank certificates of deposit. You should probably pay what a bank in your area would charge for a comparable personal loan.

-- Make a family member your dependent. You must pay at least 50% of that person’s support, but this is not available if the person's gross income is more that $3,400 per year. Required withdrawals from IRAs and 401(k)s count toward this income limit, but Social Security does not. If you are able to claim a relative as a dependent, then you can deduct the dependent's unreimbursed medical expenses above the 7.5% of adjusted gross income floor.

-- Provide a safety net. If family members are depending on you for assistance, then you may want to make sure you have life insurance in place or include them in your estate plan just in case something happens to you.

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The Estate Planning & Elder Law Firm, P.C.

The Estate Planning & Elder Law Firm, P.C. is an elder law firm. We represent older persons, disabled persons, their families, and their advocates. The practice of elder law includes estate planning, estate and trust administration, powers of attorney, advance medical directives, titling of assets and designations of beneficiaries, guardianships, conservatorships, and public entitlements such as Medicaid, Medicare, Social Security, and SSI, disability planning, income tax planning and preparation, care management, and fiduciary services. For more information about The Estate Planning & Elder Law Firm, P.C., please visit our website at http://www.chroniccareadvocacy.com.

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This newsletter is not intended as a substitute for legal counsel. While every precaution has been taken to make this newsletter accurate, we assume no responsibility for errors, omissions, or damages resulting from the use of the information in this newsletter. The Estate Planning & Elder Law Firm, P.C. thanks the law firm of Hook Law Center for their input to this newsletter.

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