Updated article: 2013 Estate Planning: Gift Options and Tax Implications
The estate planning and tax attorneys at Stein Sperling are often asked whether making large gifts to family members or other loved ones has any material benefit. In the right situation, the benefits may be significant. In contemplating such a transfer, there are certainly practical considerations that must be reviewed, not the least of which is to make sure that the individual considering the transfer has sufficient funds remaining for his or her needs and comfort level. However, recent developments have added other factors favoring large gifts as a planning alternative in the right scenario.
Currently, the maximum exemption for federal estate and gift tax purposes is $5 million in 2011 and $5.12 million in 2012. In the case of gifts, these exemptions are for transfers in excess of the annual gift tax exclusion, which is currently $13,000 per donor per donee plus added amounts for direct payment of certain medical and educational expenses. In the near future, Congress will be determining the post-2012 law and it is possible that federal exemptions will be lowered. In fact, even before 2013, Congress, as part of the “budget crisis,” may lower the federal gift tax exemption to $1 million.
The impact of this speculation is that those who are considering making large gifts, whether directly, in trust or otherwise, may wish to act now. The primary purposes for making large gifts are to exclude post-transfer appreciation from federal taxes and to avoid transferred property from being subject to Maryland or District of Columbia estate tax, each jurisdiction having only a $1 million exemption (Virginia has no estate tax). As Maryland and D.C. have no gift tax and the $1 million state exemption at death is unreduced by lifetime transfers, residents of these jurisdictions have special motivation to make gifts.
While this planning option is not necessary or even appropriate for everyone, we encourage you to contact us to review possible gifting opportunities.
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