Taxable Gifts Gaining Appeal

Over the past decade, the use of large gifts to reduce one’s estate has not been a popular technique. However, with the estate tax set to return next year at a higher level and a lower exemption amount, making large taxable gifts is gaining appeal. If you want to take advantage of this technique, you should lay the groundwork for a large gift now but wait until the end of the year to actually make it. Waiting is recommended because we still don’t know how Congress will act.

An example from the Financial Advisor is below:

“A man has $6 million left, and his estate will be in a 55% tax bracket after 2010. If he waits until he dies and bequeaths the money, the net transfer is only $2.7 million. If instead in 2010 he makes a taxable gift, he can give $4.4 million—64% more—and pay the taxes with the rest; at a 35% rate, the gift tax would amount to $1.5 million. He must survive the gift by three years for the tax brackets to apply.”

Taxable Gifts Get New Look From Wealthy, Financial Advisor, July 1, 2010.

Special thanks to Jim Hillhouse (WealthCounsel) for bringing this to my attention.