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Oct 26, 2012


Category: Firm News

I am sure you have heard that at the end of this calendar year we will experience a major shift in our laws concerning the taxation of estates.  This warrants serious consideration of making large gifts before year end.  To keep it simple, now we have the ability to transfer $5 million free from any gift tax, estate tax, or generation skipping tax (a tax the government collects on transfers directly from grandparents to grandchildren or younger generations).  Because of a budget deal years ago that is finally coming home to roost, that exemption expires December 31, 2012.  On January 1, 2013, we return to the tax system of many years ago with an exempt amount of only $1 million and rates as high as 55%.

Although many do not believe the government will allow this change actually to happen, it will be up to Congress to act, and we are all aware of how effectively Congress is acting on tax policy or any other matters.  Therefore, planners are recommending that people not lose the current tax free gifting opportunity without very careful thought.  A tax free gift today of assets that grow in value can shift much larger amounts to the next generation tax free.

If you have not already, you should consider a gift or gifts to use the current exemptions.  As you consider, here are some points for you to ponder.

1.You can use the gifting opportunity to pay for life insurance (use a trust) and remove the premiums paid this year and the future death benefits from the tax system entirely.

2. Real estate can be a good asset to give (in trust) because of the strong potential for future growth in value and because in today’s environment market values are low. 

3.Gifts to family members of amounts this large should almost always be in trust.

4. Consider a “sale” of assets to a trust that is ignored by the IRS for income tax purposes.  This freezes the value of the asset that is sold but avoids capital gain tax.

5. You can consider a “self-settled” trust, that is one in which you can be a beneficiary, to have your cake and eat it too.  For example, you can transfer assets into an Alaska trust that can pay income or principal distributions to yourself that will not be included in your estate.  This is not for everyone but may be for you.


Bryan M. Dench, Esq.

Skelton Taintor & Abbott