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Personal Financial Services

Estate and Gift Planning

A Little Planning Can Save Thousands of Dollars!
You can’t take it with you, but failing to plan for your estate can mean that the government, rather than your heirs, may get the major portion of your hard-earned money.

Over the coming years, the Tax Relief Act of 2001 gradually reduces estate and gift tax rates, and the exemption amount increases. The estate tax will be repealed in 2010, but the gift tax will be retained. Ironically, the estate tax will be reinstated in 2011 to pre-2001 Tax Act rules unless Congress acts to extend the 2001 law. In the midst of these phase-in and phase-out provisions, a little planning can save thousands of dollars.

You may be surprised what your estate is worth. Add up the value of all your assets. Don’t forget life insurance which may fall into your estate. If your total value exceeds the exemption amount, you should look into what a few simple planning techniques can save your family at estate time. In addition, there are some very effective estate planning ideas that can also cut your current income tax bill.

Current tax law allows you to give away $13,000 per year per recipient. (This amount is adjusted annually for inflation.) Your spouse may join in the gift even if he or she is not an owner in the transferred asset. This means that you could transfer up to $26,000 per year to each of your heirs. To double the annual exclusion yet again, you may want to include spouses of your children. The person receiving the gift does not need to be related to you. These annual gifts do not reduce your once-in-a-lifetime estate tax exclusion.

Property Transfer
If you have property which is not needed for your retirement, maybe it is a candidate for transferring during your lifetime. If it is a large income-producer, the future income will be taxed to the new owner and not to you, plus the property will be out of your estate.

Spousal Transfer
You can make unlimited transfers to your spouse either during your lifetime or through your estate. There are no taxes on spousal transfers, regardless of size. But leaving everything to your spouse may not be a good idea, since doing so fails to utilize the lifetime exclusion amount in the estate of the first spouse to die. Planning will allow you to use the exclusion in both estates, and you’ll be able to transfer twice as much to your heirs free of estate tax.

Life Insurance Proceeds
With proper planning, certain life insurance proceeds can be kept out of your estate.

For assistance with your estate planning, contact us.

Personal Financial Statements

Personal financial statements are used by individuals for the purpose of obtaining a loan, buy real estate, evaluate real estate, as an estate planning tool, valuing net worth for the purposes of divorce and other situations which require personal financial information. A personal financial statement does not have any information about a business on it other than the net worth of the business. Lenders, banks and other professional require a personal financial statement to evaluate collateral, assets, and to look at a person’s expenses, short and long-term liabilities and net worth. A properly completed personal financial statement will also help with the purchase of life insurance for estate and gifting purposes.


What to Keep and How Long to Keep It
Tax records should be kept on a year-round basis, not hastily assembled just for your annual tax appointment. Without tax records, you can lose valuable deductions by forgetting them on your tax return, or you may have unsubstantiated items disallowed if you are audited.

Generally, returns can be audited for up to three years after filing. However, the IRS may audit for up to six years if there is substantial unreported income. The three and six year limits start with the filing of a tax return; if no return is filed, the time limit never starts to run.

Which Records Are Important?

  • Records of income received.
  • Expense items, especially work-related.
  • Home improvements, sales, and refinances (for homes with profit potential of $250,000 or more).
  • Investment purchases and sales information.
  • The documents for inherited property.
  • Medical expenses.
  • Charitable contributions (records vary with value of gift).
  • Interest and taxes paid.
  • Records on nondeductible IRA contributions.

How Long Should Records Be Kept?
Just how long you should keep records is partly a matter of judgment and a combination of state and federal statutes of limitations. Federal tax returns can be audited for up to three years after filing (six years if under-reported income is involved). It is a good idea to keep most records for six years after the return filing date.

There are some records worth keeping permanently, partly due to long-term needs and partly because they take up very little room. Consider permanently retaining a copy of each year’s tax return. Contracts, real estate buy/sell records, and records of property improvements should be retained for seven years after the property is sold.

If you are in business, your record requirements are more extensive. Please call us; we will be happy to assist you with a system of record retention for your business.

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