Timing Family Gifts Can Yield Significant Tax Advantages

Recently we talked about the estate tax laws, but the gift tax laws also changed dramatically at the end of last year. The interaction between estate and gift taxes through the “unified credit” remains essentially the same from 2001, with the exception of the tax rates and the amount of the resulting exclusion.

A window of opportunity opened in late 2010 that may last only through the end of 2013: a short-term increase in the gift tax limit from $1 million to $5 million. With a spouse, that limit can rise to $10 million. So how can you leverage this opportunity?

For years, tax professionals routinely suggested ways to freeze an estate by gifting assets to their potential beneficiaries well before death, so that those assets can appreciate outside the donor’s estate. Since many family assets have deflated in recent years, gifting now may provide more leverage for that appreciation.

The downside of early gifts is that the donor’s tax basis stays with the property gifted, so the potential income tax to the recipient needs to be weighed against the potential future estate tax if the assets are not gifted.

Of course we have no idea what the future gift or income tax rates will be, nor do we know when any of us will die; but we must make some assumptions to develop a plan.

So what does estate freeze gifting look like?  Well, quite frankly, illustrating an example is a bit more complicated than this blog permits, so contact us and we’ll walk you through a couple of examples.

As the title of this post suggests, the cliché, “timing is everything” is especially true when we’re discussing family gifts. So if this issue applies to your situation, make time soon to reach our Patrick & Robinson CPA professionals at office@CPAsite.com or 904-396-5400.

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