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May still be time to gift in 2012, but gift planning should be done carefully

On Behalf of | Nov 28, 2012 | Inheritance And Estate Tax |

Our regular readers know that we’ve spoken frequently about the upcoming changes in tax law that will impact estate planning in the coming year. The gist: tax bills on large gifts are set to increase substantially in 2013, which means now is an ideal time to do gifting. Of course, with the year almost at its end, the biggest challenge now is getting it done in time.

In 2012, taxpayers had the ability to gift up to $5.12 million free of taxes. In 2013, the gift tax exemption will fall to $1 million. In addition, tax rates on gifts above the exemption level will increase as high as 55 percent from the current rate of 35 percent.

Of course, Congress may still take action to alter the default change, but many estate planning experts say the current situation is worth taking advantage of in any case. What may not be so ideal is that estate planners across the country are swamped with clients seeking to make last minute gifts. And, in any case, it is probably too late to set up complex gifting plans such as multi-generational legacies funded by illiquid assets.

That said, some trusts are relatively quick and easy to set up, and may still be an options for last minute planners. There are basic irrevocable trusts, defective grantor trusts, spousal access trusts, and charitable trusts. Each of these has its special uses and considerations. Each is irrevocable, so advisers should be careful that clients don’t rush to make gifts they cannot truly afford. In addition, there is the danger that individuals will set up a strategy that could leave the gift unprotected from creditors or subject to an IRS audit down the road.

Whatever gift plan one sets up, it is important that they will help achieve one’s personal goals. There is no sense in setting up an excellent gifting plan that doesn’t serve one’s vision, overall financial situation, and family.

Source: Reuters, “Your Practice: Gift tax options for procrastinators,” Jennifer Hoyt, November 20, 2012