Under current law individuals are able to give away very large amounts of their assets free of gift tax, but this opportunity may be going away very soon. For that reason, many people are making large gifts now to take advantage of this rare opportunity.
Gifting assets to children or grandchildren can be a very effective method of minimizing, or even eliminating, estate taxes at the time of one’s death. This is because any assets that are properly gifted during one’s lifetime are excluded from his or her taxable estate at the time of death. Often, individuals will gift assets that have a relatively low value at the time of the gift, and yet are likely to experience appreciation and have a much higher value at the time of death. Life insurance policies, businesses, and real estate are all assets that often fall into this category.
Relief was provided to those wishing to make large gifts when President Obama signed a multi-billion dollar tax cut package into law last December. Under this new law, an individual can make lifetime gifts valued at up to $5 million without incurring any gift tax. This is quite remarkable considering that in the previous twenty years the maximum that individuals could gift on a tax-free basis ranged from only $600,000 to $1,000,000. For those individuals who are inclined to make large gifts to children or other family members, now is the time to consider doing so.
The opportunity for making large gifts on a tax-free basis may be short-lived. The Joint Select Committee on Deficit Reduction (commonly referred to as the “Super Committee”) is scheduled to announce its proposals for deficit reduction near the end of this month. There is concern among many that the Super Committee will recommend reducing the gift tax exemption from $5 million to $1 million. If so, and if this recommendation is passed into law, an extremely beneficial tax savings opportunity will no longer be available.
If you believe gifting of assets may be of benefit to you and your heirs, we would encourage you to call or schedule an appointment to visit with us.