Articles Posted in Gifts

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gift.jpgIn these waning days of 2012, when so many of our clients are working to give assets to their children or grandchildren to take advantage of the $ 5.12 million federal estate tax exclusion, I wanted to take a moment to warn against the accidental gift–something I’ve seen a lot of these last few months as well. What’s an accidental gift? It is the transfer of an asset for less than fair market value. Even though it may not have come with a ribbon, such a transfer still qualifies as a gift under our tax code,and, if it is worth more than $13,000 (in 2012, and will rise to $14,000 in 2013) that’s a taxable gift. A client will sometimes come to our office already having made such a transfer, and they are often quite surprised (also not happy) when I tell them that they have to report that gift on a gift tax return by April of the year following the gift.

Here’s a list of the most common accidental gifts that I’ve seen this year.

1. Putting a child’s name on a parent’s deed. That’s a gift of one-half the value of the house to that child. Here’s a better idea: create an estate plan that allows your child to inherit that house at your death. This avoids any lifetime gift and they’ll inherit the house at a stepped-up basis.

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clock.jpgSomehow, it’s October tomorrow and that means that 2012 is drawing to its end. If you have been thinking that this would be a good year to make a gift to your children, you’d better act soon, not just because the holidays will soon be upon us, but because making a gift that’s larger than $13,000 requires that you take certain steps before the gift is made.

Unless you’ve been living an unusually sheltered life, you are probably aware of the fact that until December 31, 2012, each of us is able to give up to $5.12 million dollars away, free of gift tax. That’s not just an incredibly large exclusion from the gift tax — that’s the largest exclusion that there’s ever been from the gift tax. Unless Congress acts before the end of this year, the current law will expire in 2013, and the gift tax exclusion will return to what it was in 2001, $1 million. Not only that, but the top gift tax rate will return to its 2001 level, 55%, up from the current rate of 35%,

For this reason, we’ve had a lot of inquiries from clients about making major gifts before the end of the year, either outright, in trust, or via gifts of percentage interests in a limited liability company (LLC) or family limited partnership (FLP). We love to help our clients achieve their goals, and, of course, we love hearing from them, but what some of them don’t know is that even though a major gift this year is free of the gift tax, it still must be reported on a Gift Tax Return (Form 709) by April 15th of the year following such a gift.