Even though the $5.12 million lifetime estate tax exemption is under the threat of repeal, the annual gift tax exclusion is not under any threat at all. The tax exemption allows a taxpayer to give another person $13,000 a year in assets without incurring a tax on the transfer. There is no limit to the number of gifts that a person can make. The good news is that the gift tax exemption will probably re-adjusted to meet inflation to about $14,000. A person might want to consider using the annual gift tax exemption to reduce the tax that the estate might incur if the person lives in a state with an estate tax. In addition, the gift tax exemption works with the 529 education savings accounts.
In terms of actually making the gifts, a person can transfer any asset, but they must complete making the gift. In other words, there must be an actual transfer of assets. A married couple might want to take advantage of what is known as a “gift-split.” This allows one partner to make gifts on behalf of his or her partner, even if the partner making the gift is using his or her assets.
See Laura Saunders, The Gift That Keeps Giving, Wall Street Journal, Aug. 17, 2012.
Special thanks to Brian J. Cohan and Jim Hillhouse (Professional Legal Marketing (PLM, Inc.)) for bringing this article to my attention.
