February 27, 2011
Dear Liza: My husband and I lent my father our car after his was stolen. We continued to maintain the vehicle and it is still in my husband's name. My father made partial payments on it while he used it, but we'd paid for the first three years on the loan. Everybody in the family knew that if anything happened to my father, we were supposed to get the car back. My father recently died, and in his Will he left his property and his vehicle to my brother. Does my brother get our car? You can't give away what you don't own. If the car is still registered to your husband, your father's Will certainly can't 'give' it to your brother. Your father's Will only applies to the property owned by your father at his death. This sort of situation is one of the many reasons that it's a terrific idea to write down interfamily loans and arrangements like this car loan--what 'everybody knows' sometimes changes after there's been a death in the family.
February 22, 2011
Dear Liza: My elderly parents are contemplating accelerating gifting of considerable assets to their children to take advantage of the current $5 million personal exemption in place through 2012. What are the consequences if they gift based on this exemption level and it is reduced before they die? Would the estate tax rules at the time of death apply regardless of what gifting was already conducted under the current law? I don't have a crystal ball, that's for sure. And many of the details about how this is going to work are yet to be worked out, to put it mildly. And most estate planners are currently advising clients who can take advantage of the incredible gift tax break to do so. Under existing law, your parents' gifts wouldn't be retroactively taxed if the rules change after they've made those gifts. It's just like income taxes -- you pay under the rules in place in the year that is relevant. If later on tax rates change, you haven't been required to repay taxes that would have been due in a previous year under then-current law. If your parents made any taxable gifts during their lifetimes, though, these have been part of the estate tax calculation that's made, but they get a credit for any gift taxes already paid. One of the areas of uncertainty, certainly, is what would happen should the gift tax exclusion be significantly reduced in future years--and I wish I could give you a better answer. For now, your parents, and everyone else, are going to have to make a decision with imperfect information.