PLANNING IN DIFFICULT ECONOMIC TIMES
By: Sandra L. Clapp, Esq.
As the uncertainty of our economy continues to dominate all forms of media, it is tempting to put off any form of financial or personal planning to “wait and see” what happens. It is these precise difficult economic times that make planning even more important and may present opportunities to transfer or build wealth or reduce tax burdens. As the end of 2008 is fast approaching, take this opportunity to consult with your financial advisor, accountant, and attorney to determine the best planning tools for your personal situation. As you pursue this planning, consider the following:
ANNUAL GIFTS. In 2008, each individual can transfer $12,000 in value per recipient in each calendar year ($24,000 for a married couple) without any gift tax reporting. This amount is known as the annual exclusion. So long as the transfer in any calendar year is below the annual exclusion amount, the person making the gift does not need to file a gift tax return (and cannot deduct the gift for income tax purposes) and the recipient does not report the gift as income on a personal income tax return. Special basis rules apply for transfers of stock, real estate and assets other than cash which should be reviewed with your advisors. Gifts larger than the annual exclusion can be made, but such gifts will be reported on a gift tax return. As a result of lower values of stock and real estate, the present economic circumstances may present the perfect opportunity to transfer these assets to heirs with a reduced gift tax impact. Assets that have appreciation potential in the future provide good subjects for gifting.
BUSINESS PLANNING. Consider pending business purchases or disposition of assets to time the purchases or disposition to obtain the most favorable tax benefits. Consider if a retirement plan should be implemented or funded to maximize income tax and retirement savings. The lower values in the stock market may present an opportunity for your retirement contribution to grow. As year end approaches, consider postponing invoicing clients until 2009 to shift income to next year. Consult with your advisors to determine if assets should be restructured to provide liability protection or to document agreements with partners or others. The beginning of a calendar year can provide ease of recordkeeping for a new business structure.
PERSONAL PLANNING. Many changes have occurred recently in the estate tax laws and Idaho specific documents (living will and health directives and the new statutory power of attorney). In 2009, the present estate tax law allows each person to transfer $3,500,000 in assets without federal estate tax. If your estate documents are outdated, the provisions may result in unexpected results as your asset values may have decreased and the estate tax exemption has increased. Before year end prepare a will, general power of attorney, and health care directives (or review your existing documents) to protect your family from unexpected personal events.
Consider these economic times a call to get your personal affairs in order and to take advantage of wealth transfer opportunities. This article is not intended to replace legal advice applicable to your situation and should be used only for informational purposes.