For individuals and families with significant assets, the time to use the $5 million gift tax exemption is running out. As soon as January 1st, 2013 rolls around, the $5 million exemption will be reduced to $1 million, and any gifts above that amount will be taxed at a 50 percent rate.
The gift tax exemption applies to gifts that parents give to their families during their lifetimes, instead of through a will. Currently, parents can give individuals up to $13,000 per year as non-taxable gifts up to the $5 million limit. That limit will significantly decrease in about 6 months.
Estate planning attorneys are already dealing with an influx of clients seeking to take advantage of the exemption, though doing so isn’t always as easy as it sounds. Gift giving strategies sometimes take weeks, or even months, to structure properly and make sure they mesh with the other elements of a complete estate plan. In other words, those who wait until the end of the year to try to take advantage of the gift tax exemption may wait too long.
Gifting also often involves creating trusts to handle turning over major assets, such as real estate. Trusts may also be important when the parents wish to give gifts to children who are too young to manage the property.
Regardless of the method of gift giving, anyone with significant assets should speak to an estate planning lawyer as soon as possible to discuss how the gift tax exemption might apply to your estate.
Byrd : Garrett, PLLC is a member of the American Academy of Estate Planning Attorneys.