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David is a Certified Financial Planner and a Certified Quickbooks Pro Advisor.
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Gift & Estate Taxes for 2013, The Insecurity of Living in Tennessee

I hope this doesn’t surprise you, but until January 1, 2012, there was a state limit to how much you could give to anyone, other than a spouse, who is also a US citizen without paying a tax. (This is also true for federal tax reporting. See below.) The amount was only $13,000, which may sound like a lot until you consider buying your child a car or paying for their education. The only exceptions available to most taxpayers were payments made directly to an institution of higher learning or a medical services provider for the benefit of the other person, or contributions to a section 529 educational plan. All that changed on January 1, 2012, but only for gifts made after that date. If you made gifts before then without reporting them, you need to go back and do so. Federal tax law is somewhat different. The limit is the same, but you have a lifetime exemption of over $5 million of gifts and estate taxes, an amount large enough to cover most taxpayers. One thing, though, even if you don’t owe federal taxes on your gifts, you must report them when you file your tax return.

At the same time, the state replaced its old system of taxing estates with a new one which matches the federal tax code. The main reason the state legislature voted to repeal the state gift tax and modify its estate tax (which until then had been on all amounts over $1 million) was to keep money in the state. Before its repeal, assets were being transferred to other states and the gifts made and wills probated there.

This leads us into our main topic: this may be the time to review your estate planning documents, especially trusts. While the legislature was changing the state’s gift and estate tax laws, it also passed new trust laws which greatly liberalized the language that can be used and permits modifying existing trusts in a way that before the new legislation was not permitted. I strongly urge you to meet with legal counsel to make sure your documents are current. You may also want to have your financial advisor review the components of your plan not only to make sure they are in the best possible form but so that you will have a plan for what to do when Congress starts writing tax law, something it must do a lot of this year.

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