Reasons to Give During Life Rather Than at Death

Although the new estate tax exemption received all the attention, a less-widely noticed tax change could affect more people. The lifetime gift tax exemption rose from $1 million to $5 million, causing families to reconsider how they transfer wealth. When the estate tax exemption was much higher than the gift tax exemption, it made the most sense to give away money at death. Now the incentive is the same for gifts during your lifetime as gifts at death. Some of the main benefits of giving gifts now, rather than at death, include:

• Donors can see the money being used and appreciated by the beneficiaries.
• If Congress decreases the gift tax exemption in 2013 and does not grandfather gifts made in 2011 and 2012, gifts made now would still remove future appreciation of the gifts from the donor’s estate.
• Professionals with high malpractice risks can shift up to $5 million into trust for asset protection purposes.
• Higher gift tax exemptions help same-sex couples and other unmarried couples to shift assets without incurring taxes.

See Carla Fried, Estate and Gift Rules: Some Clarity, for Now, N.Y. Times, Feb. 12, 2011.

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