2012 – It’s a Good Time to Be Generous – San Diego Gifting Strategies

From the desk of San Diego Trust Attorney, Kristina R. Hess Haymes…

2012 is a good time to be generous!

We are in year 2 of the two-year estate tax “Band Aid” law passed on December 17, 2010 (the Tax Relief Unemployment Insurance Reauthorization, and Job Creation Act o f 2010).  The 2010 Act increased the Estate Tax Credit to $5 million.  Anyone who dies in 2011 or 2012 can pass $5 million to their loved ones tax free.

In addition, it increased the amount that you can gift or make a generation skipping transfer to the same high figure of $5 million.

That’s the good news.

The bad or uncertain news is that this law expires at the end of this year, or on December 31, 2012.

Thus, your window to take advantage of the $5 million gift credit is running out.

In many situations, it makes sense to give your loved ones money and/or assets during your lifetime as opposed to after you die.

The gift tax (typically 35%) is likely to be lower than an estate tax.

In addition, if you gift a partial interest, then, the value of the gift can be reduced because a partial interest is worth less than the whole.  In other words, a partial interest is subject to a valuation discount because a partial interest cannot easily be sold (it lacks marketability).  Or, if you transfer a non-voting interest in a LLC, there is a valuation discount for lack of control.

For wealthy people. the 2010 Act cannot be overlooked.  Each individual can use the $5 million gifting credit to gift up to $5 million during one’s lifetime.

John and Sally, for example, of La Jolla, California have an estate worth roughly $20 million.  Understanding that the estate tax credit is scheduled to go back down to $1 million on January 1, 2013, they decide to gift $5 million each to each of their two children into irrevocable trusts.  When John and Sally die, they will have no estate tax credit left, but chances are slim that the estate tax credit will remain as high as $5 million.  This is the highest level it has ever been in US history.

Some people may be reluctant to make such a large transfer, however, you can use a smaller amount and take advantage of this large estate, gift, tax year.

Other options include Charitable Trusts, and Grantor Retained Annuity Trusts (GRATS).

The important thing to keep in mind, is you have 3/4 of a year to get this done.

2012 is a good time to be generous.

Create Your Legacy Today!

Kristina Hess Haymes

DISCLAIMER, this blog is not intended to provide legal advice, but general information.  We do not have an attorney client relationship and you should seek the advice of counsel and tax counsel prior to making any gifts or executing any estate planning documents.