Holiday Review: Gifting and Gift Taxes

With the holidays right around the corner, many people are thinking about giving gifts but also about tying up their charitable donations as the tax year winds to an end. It’s important to understand what kinds of gifts you can pass along without there being tax consequences. This is helpful not just as a reminder for holiday gift-giving, though, but for your long term awareness of what saves on taxes and what does not.

Bear in mind that gifts to individuals are not like charitable donations- there are no income tax deductions for gifts that you pass on to other individuals. However, these can be a good tool to pass on investment income away from you and into the hands of family members that are in lower tax brackets. There’s a side benefit related to your estate, too. Passing on gifts to others can minimize the value of your estate that will be taxed at death.


Factor in gift taxes whenever you’re passing on cash and playing Santa, though. For the most part, the gift tax is a high enough value that it doesn’t pose problems for many individuals. Annual exclusions for an individual are $14,000, and this is double for a married couple. And it doesn’t matter if you’re contributing the entire $28,000 or whether you and your spouse are splitting this gift to one person- the exclusion protects you all ways around.

Some people have the misconception that they can only give away up to $14,000 per year, but this is on a per-year, per-person basis. If you wanted to, you could pass on the individual or married couple amount to each of your grandchildren, children, other relatives,or friends.

If you’re intrigued by what other strategies can aid in your long-term planning, contact our estate planning professionals today at



Fast Facts: Inheriting Books

Rare books? Might want to be sure they’re listed in your will.

When a loved one passes away, there are many valuables or assets that might be specially reference in the will or other estate planning documents, but inheriting a library can raise a lot of questions for you. If you’re not a book collector yourself, it can be confusing to determine what books are rare or not and just how much time you should spend on figuring out what to do with the books.

If you make a bulk donation, though, you might miss out on some rare library gem that you’d like to keep in the family or sell. If you think there are rare books in the collection you’ve inherited, it could be worth the time to identify those special books and make your own decisions about how to handle them.

Thankfully, there are several sites that can make your search easier. You can begin by sorting the books you know you want to keep or give away and make a special pile of those you want to research further. This will help you make the most of your time.

The following sites can be helpful when you’re searching for book values. To make sure you’re accessing the right information, always use the ISBN as opposed to the title or author so that you are comparing apples to apples.


If you think there are numerous titles that you can’t handle, contact a rare books specialist to help you determine the value of what you’re looking at. An experienced dealer can also clue you in to factors like possible damage or covers that could alter the actual value of the item.

If you’ve got rare books in your own collection, consider listing them for your estate plan. It will make life easier on your heirs in the event that you have a large library. To learn more about estate planning for unique assets, contact our office today at



Credit Shelter Trusts: Do I Need One?

Credit shelter trusts have a history of popular use with married couples because at its basis, this trust protects assets up to the federal estate tax and gift tax exclusion in order to be taxed under the first spouse’s estate. When that spouse passes away, the assets stay in the trust in order to benefit the surviving spouse. When the second spouse passes away, the assets are not taxed because they are protected under the unlimited marital deduction. Without the use of this credit shelter trust, the gift and estate tax credits for the first spouse wouldn’t benefit the other spouse, leaving the second spouse’s assets subject to higher tax on death.


This concept is known as portability and it was made permanent through the American Taxpayer Relief Act of 2012. For those married couples with smaller or medium sized estates, credit shelter trusts can still be a valuable asset.

There are several distinct benefits to this concept of portability. To start with, it makes planning easier for married couples. There’s no real added steps that the couple has to take in order to take advantage of portability. There’s no need to create testamentary trusts when portability is accomplished. Doing this also eliminates the need for considering major tax consequences of which spouse dies first.

Credit shelter trusts are also relatively easy to administer. The surviving spouse retains control over the assets and the executor doesn’t have to consider the best approach to to trust funding. It’s important to note, though, that tax returns still need to be filed in order for the portability to be protected for the survivor.

Finally, beneficiaries can take advantage of a second basis step-up when the second spouse passes away. Assets inside the trust don’t get included in the survivor’s estate. This step up in basis can add a lot of value if there are appreciable assets inside the trust like real estate or businesses. This is because of the high rates associated with capital gains taxes as well as  the net investment income tax.

For more information about setting up a credit shelter trust for your family, contact Shah & Associates at 732-521-9455.

Annual Estate Plan Review: A Smart Decision

Having all the documents in line for your current needs is crucial for your short and long term planning, but it’s just as important to be sure that you are following up on those materials at least yearly. Circumstances change, laws change, and it’s simply prudent planning to review and verify the accuracy of what you have put together. Using an annual review program like the Lighthouse Maintenance Plan .


There are also very personal reasons that it’s wise to have your plans reviewed on an annual basis. Changes in your life circumstances may alter your wishes, transfer of assets, or the names of beneficiaries you have listed on your policy. Here are some of the most common reasons that you need to contact an estate planning attorney for some updates:

  • A change in marital status
    • Marriage gives you several opportunities to minimize taxes
    • Divorce usually means the removal of the spouse from fiduciary responsibilities and the beneficiary role (unless you are mandate to maintain them on a policy per your divorce decree)
  • Purchase or Sale of a Company/Business
    • Purchase: Make sure you have plans in place for how the business can be sold or transferred if something happens to you
    • Sale: Determine to what extent your estate is taxable, and have a plan for where the assets from the sale will go (like a trust).
  • Moving to a new state
    • Since each state has different requirements (and some even have state estate taxes), make sure your documents are in line with applicable laws.
  • Birth, Death, or Life Changes for Fiduciaries or Beneficiaries
    • If circumstances have changed, this is a great reason to update all your documents.
  • Significant Changes in Your Personal Finances
    • Has your estate decreased in value? Have you recently inherited money or won the lottery? This is a good time to reach out to specialists to be sure you’re maximizing your assets and minimizing taxes.

Be sure you’re getting the most out of your review program. The Lighthouse Maintenance Plan offered by Shah & Associates includes a yearly review, compliance with any changing requirements or laws, educational materials, telephone consultations, invitations to planning workshops,and 24-hour access to your documents. If you’d like to learn more about how the Lighthouse Maintenance Plan can help you get the most out of your tax and estate planning, contact


Tax Return Requirements for Nonresidents with U.S. Assets

Individual nonresidents in the U.S. may be subjected to estate taxes under U.S. regulations if the individuals owned U.S. assets. There are several different items that might quality as U.S. assets, such as personal property, securities of companies based in the U.S., and real estate situated in the country. There are some regulations when it comes to stock holdings, as well, even if you help the certificates abroad or maintained those certificate registrations under the name of another person. If the stock holdings are U.S. companies, those assets may also be subject to estate taxes.

There are exceptions to these rules, though. If the securities you hold generate portfolio interest, are received from

Credit: Americorps Alums
Credit: Americorps Alums

insurance proceeds, or are bank accounts linked to businesses or trades not in the United States, the assets are exempted. Executors who are servicing the estate of a deceased nonresident with U.S. assets will need to file an estate tax return with the IRS in the event that the fair market value of the U.S. assets is greater than $60,000.  This is know as form 706NA, and it can still be required if the value of the assets is less than $60,000 on the date of death in some situations.

There are ways to plan around this to help avoid any unnecessary taxation. Speaking with an experienced estate and tax attorney can aid in the identification of proper strategies to plan for these kinds of assets. One such tactic, for example, is in owning these assets inside a properly structured trust rather than owning each asset individually.

International investors should be aware of these regulations and opportunities for a planning conversation. To set up a plan that minimizes taxes by structuring the position of assets properly, contact Shah & Associates at 732-521-9455.



On The Same Page: Preparation for Estate Plan Heirs

Failing to plan comprehensively can be a big downfall for a modern estate plan. There’s more involved than just putting your own documents together, though. Communicating with the beneficiaries is another crucial step. It turns out that all too often, plans don’t wind up passing on assets the way creators thought they would. A 2012 study conducted by U.S. trust explored the situations of more than 3,000 wealthy U.S. families, finding that 70 percent were unsuccessful in passing on family assets to the next generation. Three critical reasons were cited for these failures:

  • No universal “purpose” discussed for family possessions
  • Lack of preparation/knowledge by heirs
  • Failure to communicate among family members
Credit: Intuit

Many of the miscommunications that end up with arguments between family members could have been prevented with communication beforehand. Heirs, too, need to do some work ahead of time to ensure they are prepared for the transfer of assets. Heirs should be aware of the estate tax lifetime applicable exclusion amount and whether any state estate taxes will be applied. Gifted assets carry forward with the deceased’s tax basis, but inherited assets will receive a “step up” towards market value at the time of death.

Retirement assets should be scrutinized closely since they are very susceptible to tax mistakes and because they don’t get a step up in basis. Make sure all the forms are updated properly and that the heirs are aware of the plan’s rules for taking over/obtaining access to assets.

Communication and planning are crucial for every party to an estate plan. To learn more about successful estate planning in New Jersey, contact our offices for an appointment at


Profit or Hobby: Understanding Tax Consequences of IRS Determination

Section 162 of the U.S. tax code is critical for individuals who work for themselves in a variety of occupations. When a taxpayer can demonstrate that he or she is engaged in a business venture with the objective of earning a profit, or or she can deduct necessary and ordinary expenses associated with carrying out that business. A business owner can even deduct expenses related to the business that are in excess of the total profit earned by the business, but not if their venture is classified by the IRS as a “hobby”.

Credit: LiveWithinYourHarvest
Credit: LiveWithinYourHarvest

When the activity is classified as a hobby, you can only deduct expenses up to the business profit- meaning that there can be no net loss. Since this issue has come up so much recently, it’s worth a review of the nine factors analyzed in Section 183 to determine if something is a hobby.

  • The manner in which the activity is carried out by the taxpayer, including record-keeping
  • The expertise of the taxpayer and his/her advisers
  • The time and effort put forth by the taxpayer carrying out the activity
  • The expectation that assets would appreciate in value
  • The relative success of the taxpayer in carrying out other similar/dissimilar activities
  • The history of losses or income by the taxpayer related to this activity
  • Occasional profit amounts
  • Whether other income sources offset the activity loss
  • Whether the activity lacks factors related to recreation or personal pleasure

A recent case involving an artist demonstrates the complexity of these issues when it comes to taxation; after reporting many years of net losses during her career as an artist, the taxpayer’s business venture as such was challenged by the IRS. After careful review of the factors above, the tax court eventually determined that she was engaged in her art ventures with the intent of making a profit. As you can see by the nine factors listed above, it’s in your best interest to have a strong bookkeeping system and team of tax advisers helping you in the event that the IRS questions the nature of your business. Email us today to learn more:


Power of Attorney 101

Making the decision to put a power of attorney in place is an important and wise one, since powers of attorney are accepted in all states. When valid, a power of attorney can give someone else the opportunity to make decisions and elections on your behalf. Like all estate planning documents, you should have your estate planning attorney review your document to ensure it’s validity in your resident state.


A power of attorney can be sweeping and broad, enabling an agent to act fully on your behalf, or it can be limited to ensure that certain transactions and scenarios are taken care of in the event that something happens to you. If you want to be sure that the closing portion of your home sale goes through, for example, you can structure your power of attorney to only “activate” the agent’s powers in that particular capacity.

Just as your power of attorney can be flexible based on your needs, so too can the timeline for when you agent’s powers become active. Signing the document can make your power of attorney active immediately, but you might decide to include wording that only makes it active after an event that leaves you incapacitated. A sudden car accident or disability  are examples of circumstances where you might want your agent to become active on your behalf.

Your agent can act on your behalf in general or in the capacities you outline in the actual document, but it’s critical that your document is valid and that a copy is maintained by the agent. This is because when they act on your behalf, they will usually need to produce the power of attorney in order to successfully complete tasks or transactions for you.

Some people even use a power of attorney simply as a matter of ease; doing so allows you to equip someone else with the ability to sell and buy assets regularly without you actually needing to show up in person. Used as a future planning tool, it can also be important to protect your interests in the event that something happens to you. To put your power of attorney together, contact us at 732-521-9455.