Unique Gifting Opportunities in 2012

Currently, the Federal Estate, Gift and Generation-Skipping Transfer (GST) Tax exemption amounts are unified at five million dollars and have a tax rate of 35%. However, absent congressional action, on January 1, 2013, the exemption amounts will drop to one million dollars and have a tax rate of 55%.

Unless Congress acts, an individual can gift up to five million dollars and a married couple can gift up to ten million dollars, depending upon prior lifetime gifts. This unique gifting opportunity presents a great opportunity to help your children reduce their debts while also retaining your own interest in potential gifts. You may want to use a gift of cash to pay-off your child’s student loans or enable them to build their own nest egg by helping to reduce their mortgage. Perhaps you have a non-income producing vacation home that you plan to pass on to future generations? Now may be the time to pass on partial interest in the home. You can retain a personal financial interest in the home, while significantly reducing possible tax consequences of the gift.

In addition to the Federal Estate, Gift, and GST tax exemptions, annual gift exclusions are also available. Using the annual gift exclusion, an individual can give up to $13,000 per recipient each year with no limitation on the number of recipients. Likewise, a married couple can give up to $26,000 per recipient each year.

You can take advantage of your Federal Estate, Gift and GST exemptions and your annual gift exclusion a number of different ways. You can make direct gifts of property to your child, grandchild or other individuals using cash, marketable securities, closely held stock, real property or tangible personal property. The gift can also be made to a trust for the benefit of individuals, which can be held to fund education or other purposes. Gifts in trust can leverage the annual gift exclusion by using discounted assets like closely held stock or partnership interests, or through the use of assets that are expected to appreciate.

A 529 college savings account also provides another gifting option. A 529 college savings account offers the opportunity to accumulate funds for future college expenses on a tax-deferred, even tax-free basis. An exception in the gift tax law permits five years of annual exclusion gifts to be made in the first year of funding a 529 account. Thus, an initial contribution of $65,000 for an individual, or $130,000 for a married couple, can fall within the annual gift tax exclusion.

In addition, there is also an unlimited gift tax exclusion for each charitable gift. Charitable gifts can be direct gifts of assets to a charity or indirect gifts through a trust. The establishment of a charitable gift annuity or charitable remainder trust can be used to fulfill a substantial gift to a charity, while generating a stable annual cash flow during one’s life. Tuition and medical expenses paid directly to an institution are excluded from gift taxes and are not part of the $13,000
per donee annual gift exclusion. Transfers between spouses who are United States citizens are also free of gift taxes.

The end of 2012 presents a unique opportunity for lifetime gifting. Many of these opportunites require creating and funding a trust, which can take a significant amount of time, so it is important to call your Stark & Knoll attorney today to explore your options. You can reach your Stark & Knoll attorney at 330-376-3300.

Stark & Knoll Co., L.P.A. 3475 Ridgewood Road Akron, Ohio 44333-3163
Phone: 330-376-3300 Fax: 330-376-6237

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