Dear Dr. Don,
My wife and I have recently retired and are both receiving retirement benefits from Social Security and our state’s teacher retirement system. Our combined income from these two sources is approximately $145,000, after taxes. Our home is paid for and we have no debts.
We have tax-deferred monies and IRAs worth approximately $1.3 million. At this time, we have approximately $535,000 invested in CDs, savings and mutual funds. We recently inherited three houses in the state of Florida and are trying to decide what to do with the funds when the sales are completed.
We are already gifting to our two children the federal limits related to gifts. What do you suggest?
— Jim Juxtaposition
Congratulations to you and your wife on making some sound financial decisions over your working careers to get to the point where you have these concerns at retirement. I hope (and plan) to join you at that point — eventually.
There’s a difference between the annual gift tax exclusion — $13,000 per person in 2009, or $26,000 if you and your wife split gifts — versus the $1 million lifetime gift tax exclusion that both you and your wife have available to you.
IRS Publication 950, “Introduction to Estate and Gift Taxes,” provides a nice overview of gifting and its impact on your taxes.
That’s about as deep as I’m willing to go, especially since estate tax law is in a state of flux. The new administration will be forced to sort things out since the estate tax is currently scheduled to sunset (expire) in 2010.
But the bottom line is you should work with an attorney on your gifting and estate plans. It’s not just about managing taxes; it’s also about accomplishing your goals for these assets. Don’t forget to include your accountant in these discussions.