Inheritance, Estate, and Gift Taxes in NY, NJ, and VA?

Question

My dad is about to retire and recently sold the office where he used to work.

He would like to give half of the sale proceeds after he pays his capital gains tax (office has been completely depreciated in NY) to me and my sister. I live in Virginia and she lives in NJ.

Can he use part of his lifetime estate tax exemption to transfer the assets without incurring inheritance, estate, or gift taxes?

And what exactly is the difference between inheritance and estate taxes?

Answer 1

He can use his lifetime exclusion to avoid Gift taxes. This will lower the Estate Tax exclusion amount, however.

The lifetime Gift Tax exclusion is $1 million, even though the Estate Tax exclusion will climb annually until 2010 when the Estate Tax goes away entirely.

But, here's the rub: Unless Congress acts before then, the Estate Tax will roar back in 2011 at last year's exclusion level of $1 million. Unless your Dad "times" his own death properly and dies before 2011 and if he used the full $1 million Gift Tax exclusion with this gift, his estate will be fully taxable upon his death. I know that this sounds macabre, but it's the current state of things right now. Congress COULD act between now and then to change this oddball situation but there is no guarantee that they will. With the current state of affairs in Washington right now, I won't predict ANYTHING.

Your Dad should consult with a CPA who handles financial planning including trusts before he takes any action at all. How he handles this and the foibles of Congress could have disasterous tax consequences if it isn't done right. It's possible to protect his wealth but he will need professional assistance to do so properly.

Answer 2

With the complexity of the tax stuff you are asking for, you need to contact a Tax Professional, because you are going to need someone not leaving town, who will have your files and records for many years.

National Association of Tax Professionals can refer you to someone in your area.

Good Luck & bless