Much has been written about strategies for taking advantage of the historically unprecedented $5,120,000 exclusion from gift taxes that is available for gifts during 2012. Time is running out on the ability to make and document such gifts before the end of the year.
Of course the furor is all about what happens if the Bush era tax cuts expire and the estate tax exclusion amount goes back to $1M and the opportunity to get an additional $4.12M out of the estate and gift tax system is lost.
There are several strategies available that address the concerns, but factors to consider include
1) Do you have sufficient wealth that you can afford to give away assets of that magnitude?
2) After making the gift, will you have enough cash flow to be comfortable?
3) Do you have assets to give away that are not highly appreciated; and if so, is there an alternate strategy that will work for you?
Giving away $1M does nothing to improve your tax situation. Because of the uncertainty about what the tax laws will be, it is not clear that giving away even $3.5M will help. This is a strategy that works best at the maximum level and at best is only neutral at the $3.5M level. It is also a strategy that must be careful designed and carried out.
Most plans will require a formal valuation of the gift property, mindful analysis, and careful implementation. If you need help working through the analysis, call me now.
Next week, I will explain the mechanics of the coming changes to capital gains tax and the medicare surcharge and why it is tax efficient to harvest capital gains before the end of the year.