Give Your Money Away! What???

There may never be a better time to give your money away.
For those of you who are fortunate to have large estates, gifting now is an important estate planning tool due to the pending expiration of a favorable estate and gifting environment, the low interest rate environment, and the abundance of undervalued assets.

Without Congressional action by year’s end, the Bush Tax Cuts will expire or “sunset.  Currently, many folks take advantage of their ability to make tax-free annual gifts of $13,000 per person per recipient, in addition to unlimited direct gifts for medical and educational expenses. And the 2012 federal applicable exemption amount for life time gifts and gifts made at death is $5,120,000. If the Tax Cuts expire, the exemption will go back to the former $1 million lifetime cap on gifts. This five-fold increase in the exemption was a major “gift” to those families wealthy enough to take advantage of such government largess.

Making lifetime gifts is a simple and effective estate tax minimization strategy. Giving assets at no gift tax cost will allow both the current principle and its appreciation to forever escape the Federal estate tax. And taking that concept one step further, smart estate planning will leverage those gifts, while allowing for some control. By using various types of trusts, LLC’s, asset sales, insurance, promissory notes and other planning tools, lifetime gifting can be dramatically increased. Think of this the same way you think of prefunding college expenses for children and grandchildren; what I am talking about is prefunding one’s inheritance with any remaining taxable estate directed towards charity, directly or through foundations.

Planning for large gifts should be carefully reviewed in the context of income tax considerations, portfolio investment, cash flow, and many other considerations. Now is the time to meet with your financial planner and estate attorney. This is an election year and none of us can predict what the winds of political Washington will bring next.

Debra G. Simms

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