Wade Law Blog

Now or Never to Take Advantage of Gift-Tax Exemption Limits

Dec 27, 2012| BY: Wade Law Offices

At the end of the year, the federal gift-tax exemption will fall from $5.12 million to $1 million, making this the perfect time to take advantage of the higher limits and avoid future estate taxes for beneficiaries.

The Wall Street Journal (http://tinyurl.com/cy3xval) recently listed several ways that you can take advantage of the current gift tax limits:

  • Forgiving loans to family members;
  • Equalizing cumulative financial gift amounts to children and grandchildren now, so they can avoid arguments and estate taxes later;
  • Spreading financial ownership of a family business amongst beneficiaries;
  • Creating irrevocable trusts that ensure peace of mind for you and your beneficiaries.

Loan Forgiveness

If you have loaned money in previous years to family members, this is a good time to turn that loan into a tax-exempt gift. However, you must be careful when using gifts in this way to avoid back tax penalties or audits for yourself or family members.

According to the IRS, those previous loans can be brought into question without a proper paper trail to prove that they were not actually gifts at the time they were made. To avoid questions from the IRS about the validity of the previous loans, you can give family members money which can be used to pay off the loan. You must keep documented proof of this loan repayment in order to avoid penalties.

Equal Division of Assets

Wills and trusts often call for the equalization of gifts to children and grandchildren for weddings, education, homes, or other needs. To prevent squabbling among family members about fairness, you can take advantage of the higher gift limits by making that equalization now rather than later, ensuring the equal distribution of financial gifts to all beneficiaries.

Continuing the Family Legacy

Under current law, current gift tax-exemptions and valuation discounts for minority stakes in a business allow you to spread out ownership of the family business among beneficiaries. By gifting stakes in a business, you can avoid future estate taxes and maintain continuity of ownership. These valuation discounts may be taken away, so now is the time for you to make those gifts.

Peace of Mind

Irrevocable trusts are the tried and true way to safeguard wealth. Spousal limited-access trusts (SLATs) can ensure that you take advantage of gift-tax limits without giving away too much too soon.

The time has never been better for making those tax-exempt gifts, so take advantage of it now before the law changes.

Tax Planning

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