TaxProf Blog

Editor: Paul L. Caron, Dean
Pepperdine University School of Law

Sunday, May 27, 2012

June-December 2012: A Golden Time of Gift Giving

Wall Street Journal, A Golden Age of Gift Giving:

With the government's $5.12 million gift-tax exemption set to fall to $1 million at year-end, more families are using the current leeway to do some financial housekeeping, experts say. "Cleanup gifts," as estate planners call them, can be used to forgive intrafamily loans, equalize gifts to children or grandchildren, pass along an interest in a family business or preload a life-insurance trust, among other strategies. ...

But before families start writing checks, the most important thing to consider is whether or not they should make gifts in the first place. "Everybody is trying to save taxes to the extent that they can, but at the end of the day they want to make sure there is money in their bank account for themselves," says Hilary Pierce, a partner and head of the estate-planning group at Sideman & Bancroft in San Francisco.

If you still feel comfortable with the idea of making gifts after subjecting yourself to that gut check, here are some ways to tidy up your planning:

  • Forgive and forget. Well-off families who used up the former exemption of $1 million would sometimes turn to low-interest family loans to continue transferring assets to children and grandchildren. Forgiving such a loan now makes it possible to take advantage of the current exemption without shelling out cash. ...
  • Even out the score. If your grandchildren span a wide age range, your children have different numbers of children or you have been married more than once, the cumulative value of gifts you have made to various family members to help pay for education, weddings, homes or other items might vary widely. ...To fix those problems, clients often include language in a will or trust to "equalize" gifts to grandchildren. ...
  • Give away the store. With the current gift-tax exemption and valuation discounts for minority stakes in a business, you could move at least part of a family enterprise out of your estate. ...
  • Set up a backstop. It is a longtime, plain-vanilla estate-planning tool: an irrevocable trust with your children, grandchildren and spouse as beneficiaries.Now, with a sexy new acronym, so-called spousal limited-access trusts, or SLATs, are getting a lot of attention from people "who are worried about taxes but also about giving too much away," says Robert Morrill, managing partner at Gilmore, Rees & Carlson, a Wellesley, Mass., law firm that specializes in trusts and estates.Such trusts can get assets out of a husband's or wife's estate while taking advantage of the full gift-tax exemption.Mr. Morrill encourages clients to assume the surviving spouse isn't going to reclaim any assets from the trust, though there is an escape hatch: The trustee could make distributions for the surviving spouse "if fortunes change after the trust is funded," he says.

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