Stick to lifetime gift-giving programs.What will happen to the estate and gift-tax laws in the next few months? At this point, it's anyone's guess. Strategy: Focus on what you know now. Emphasize estate-planning techniques that would seem to make sense for clients no matter which way the wind blows. For instance, if a wealthy client has started a lifetime gift-giving program, he or she should continue it. It's likely that the estate tax will ultimately survive, in one form or another, so reducing the taxable estate through gifts can't hurt. But be sure clients avoid potential traps for "deathbed gifts" (see box). Background information: Under the monumental mon·u·men·tal adj. 1. Of, resembling, or serving as a monument. 2. Impressively large, sturdy, and enduring. 3. Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA EGTRRA Economic Growth and Tax Relief Reconciliation Act of 2001 (also known as EGTRAA 2001) ), the estate-tax exemption equivalent has gradually increased, topping out at $3.5 million this year. The tax is scheduled to be repealed completely in 2010 only to return in 2011 with just a $1 million exemption. EGTRRA includes other key revisions, but this "sunset provision A statutory provision providing that a particular agency, benefit, or law will expire on a particular date, unless it is reauthorized by the legislature. Federal and state governments grew dramatically in the 1950s and 1960s. " is the main sticking point sticking point n. A point, issue, or situation that causes or is likely to cause an impasse. Noun 1. sticking point - a point at which an impasse arises in progress toward an agreement or a goal . Despite the pending changes, the annual gift-tax exclusion has been preserved. Currently, there is no gift tax imposed on a gift of up to $13,000 per recipient ($26,000 for joint gifts by a married couple). The limit is indexed for inflation. Example: Craig and Mindy Gluckman have three adult children and seven grandchildren. If Craig and Mindy each give the maximum $13,000 to each of these 10 individuals this year, they can transfer $260,000 ($26,000 x 10) free of gift tax. By systematically using this technique, the Gluckmans can reduce their taxable estate by $1.3 million ($260,000 5 5) in just five years. Furthermore, individuals have a lifetime gift-tax exclusion of $1 million to shelter gifts above the annual gift-tax exclusion. But this reduces the available estate tax exemption. Advisory: Remember that estate taxes are only part of the equation. For instance, if clients give gifts to minors, it could result in future "kiddie tax Kiddie Tax A tax on children under 14 who earn income over $1,200. The extra income is taxed at the guardian's rate. Notes: Since children under 14 can not legally work, this income usually results from dividends or interest from bonds. " complications. Silence is not always golden Sometimes an individual near death will give away significant wealth in a last-ditch effort to avoid estate tax. But the courts often take a dim view of such gifts. New case: An ailing parent gave his son power of attorney over his affairs. In 2003, just before the parent died, the son wrote checks for $11,000 (the maximum gift-tax exclusion per recipient that year) to 17 relatives. Under the controlling state law of Pennsylvania, gifts made under a general power of attorney are unauthorized if the document is otherwise silent. Therefore, the gifts had to be added back to the parent's taxable estate for federal estate-tax purposes. (Barnett, DC-PA, No. 07-cv-844, 5/27/09) Advisory: This harsh result could have been avoided if the document specifically authorized gifts. |
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