Time is running out! The gift that tax law has given high net worth individuals is about to expire. We're talking about the gift tax exemption.
Right now, it's at $5.12 million. If nothing happens in Congress (and it's unlikely that anything will, since this is an election year), then the tax exemption amount will go down to $1 million on Jan. 1.
That's actually the same level the exemption was at in 2002, when former President George W. Bush's tax cuts took effect, MarketWatch reports.
What does this mean for you, if you have a sizeable estate?
It means that you can make huge gifts this year. In fact, it means that you should make huge gifts this year, before the tax exemption expires.
If your estate is in the millions, then a gift will provide a valuable opportunity for you to reduce your estate. A gift can be made in many ways. For example:
- You can make an outright gift. While this seems to be the simplest form of gift-making, it might not be the optimal form. Many people simply aren't ready to give the money or property outright to their heirs, especially if the heirs are minors.
- Gifting through an irrevocable trust is a smart way to take advantage of the gift tax exemption. An irrevocable trust is a document drafted by an estate planning attorney. It allows the donor to make a gift while maintaining a level of control over the gift.
A gift to an irrevocable trust is, as it sounds, irrevocable. So before making a gift, you need to think carefully. One important factor is the value of the gift at the time it's made, as well as its potential for appreciation in value.
Now is the time to make the gift. The year is almost over and estate planners are swamped. Don't wait until December, as the process may take longer than anticipated.
For those with large estates, the current $5 million exemption is a gift in and of itself. Once the estate tax exemption goes down to $1 million, the window of opportunity to make tax-free gifts in excess of that amount will close.
- Search Directory of New York Estate Planning Lawyers (FindLaw)
- Estate Tax Law (FindLaw)
- Beware of Formula Clauses and Estate Tax Uncertainty (FindLaw's New York Estate Planning News)