Making gifts are a great way to shift your assets to your intended beneficiaries as well as reduce your tax liability upon your death. The current laws for gifting in 2012 are some of the most favorable we've ever seen. This is definitely the time to start thinking about putting a gifting plan in place before year end.
So, here are a few questions to ask yourself, to take advantage of laws surrounding gifting in 2012:
Is it time to set up a trust for estate tax purposes? Currently, the amount of cash and property that each person may pass during life to another person without incurring a gift tax is $5,120,000. However, the lifetime gift tax exemption is only applicable until January 1, 2013. Based on current rules, the lifetime gift tax exemption in 2013 will be reduced to $1,000,000 with a tax rate of 55%. Due to the uncertainty in the law for 2013 and beyond, it is important to take advantage now of the $5,120,000 lifetime gift tax exemption amount.
Can I make use of an annual gift in addition? Each person can give away $13,000 annually, tax-free to another person. So you can gift $13,000 to each of your children and grandchildren in order to reduce your estate for tax purposes without incurring a gift tax. You may wish to consider gifting to a trust for the benefit of your children and grandchildren rather than outright.
Are medical or college tuition gifts exempt? Gifts for medical expenses or education are completely free of tax to the donor and the recipient, provided such gifts are made directly to the medical and educational institutions, and don’t count towards your annual or lifetime exclusion amounts.
Do I have any appreciable assets to gift? Appreciating assets make for great gifting in 2012 because they’re only counted at their current value. This is called fixation of value. If you have stock that you expect to be significantly more valuable in the future, this would be an excellent time to gift it or, ideally, move it into a trust.
In short, it is important to take advantage of the unprecedented high lifetime gift tax exemption before it expires in 2013 in order to shift assets to your intended beneficiaries as well as to reduce your taxable estate. While investing sites often say things like this, 2012 really is one of the best times you could choose to do estate planning and work on reducing your tax burden.