Although the New Year is fast approaching, it is not too late to make a gift to family members or friends and maximize the annual gift exclusion. Every year, an individual can make a $13,000 gift per donee. In addition, a married couple can join forces and make a gift of $26,000 worth of assets to each person. Make sure you document all gifts so there is a written record if needed in later years. Gifts of $13,000 or less per person are not taxable and do not utilize any of your lifetime gift exemption. The lifetime gift exemption is currently $5,000,000, but projected to be reduced to $1,000,000 at the end of 2012 unless there is an act of congress to raise the exemption amount. However, that won’t likely be known or determined, if at all, until the end of next year.
Also, if you have a more significant estate you may wish to do some planning in 2012 to take advantage of some or all of the temporary $5,000,000 allowance that is to remain with us until the end of 2012, unless congress intervenes. Some options include outright gifts or the formation of an irrevocable trust which when coupled with the use of a 60-day withdrawal right extended to each trust beneficiary will qualify the trust contribution for the annual exclusion. Provided a beneficiary does not withdraw their portion of the gift within the allocated time period, the asset contribution to the trust can shield the beneficiaries from their creditors, divorce claims, frivolous spending and erratic investments that they might incur had the assets not been protected by the trust.
Proactive planning is essential, but end of year options for potential tax savings remain. Wishing you and your family a happy holiday as you celebrate and ring in the New Year!