Discussions of the looming fiscal cliff have paid scant attention to
estate and gift taxes. But wealthy people might do well to consider being very generous this
month and giving very large gifts at today’s bargain tax prices.
While the
estate and gift tax has been in flux for the past decade, only its most recent
uncertainty has forced the wealthiest to address their financial fate. A recent
Forbes article, Give Now or Pay Later: Rich Face Dilemma
With Fate Of Estate And Gift Taxes Up In Air, discusses, in plain
language, the consequences of giving now or waiting.
Basically,
the current estate and gift tax exempts $5 million of gifts or bequests and
taxes any excess at 35 percent. And unless Congress takes action, on January 1,
the tax will return to a $1 million exemption with the excess taxed at 55
percent. Accordingly, the wealthy may want to consider giving large gifts
before the end of the year.
However,
proceed with caution. If you are gifting assets to your nephew that have
appreciated in value, your gift comes with your basis – the amount you paid for
the asset. If your nephew sells the asset, he will owe tax on both your capital
gain and any appreciation after the gift. If your nephew inherits the asset,
however, he will only owe capital gains tax on the gains that occur after
inheriting the assets.
The
undetermined fate of the federal estate and gift taxes has the potential to
cause the wealthy to make ill-advised gifts. To avoid making one of these
ill-advised gifts, and potentially costing you or your loved ones millions of
dollars, consult with your estate planning attorney in advance.
For more information about estate tax planning in Torrance, CA please visit my website.
Reference: Forbes
(December 17, 2012) “Give Now of Pay Later: Rich Face Dilemma With Fate of Estate and
Gift Taxes Up In Air”