Gifts in 2012

With the estate and gift tax exemption set at such a high level, experts claim that a good majority of people are taking advantage the beneficial tax exemption. However, there are some important aspects of gifts that taxpayer might want to take into consideration.

• A taxpayer might want to forgive loans that the person might have made to other members of the family. However, it is important to follow the proper procedure for forgiving loans. The failure to follow the procedure could result in the I.R.S. determining that the loan was in fact a gift, which would change the tax treatment on the loan. Furthermore, following the proper procedure could prevent the borrower from receiving income as a result of the loan forgiveness. This could create an additional tax for the borrower.
• A taxpayer might want to take this opportunity to even the amount that a taxpayer has gifted to each member of the family. The advantages of doing this could prevent a conflict from emerging later.
• A taxpayer might want to gift his or her ownership within a family enterprise. 
• A taxpayer might also want to create an irrevocable trust with a taxpayer’s family members as the beneficiaries. This could help those who are worried about their taxes, but are also concerned with keeping enough of their estate to maintain support for themselves.

See Kelly Greene, A Golden Age of Gift Giving, Wall Street Journal, May 25, 2012. 

Special thanks to Jim Hillhouse (Professional Legal Marketing (PLM, Inc.)) for bringing this article to my attention.