The fat lady is almost singing to signal the end of the current gift and estate tax exemptions and rates. To start with, the so-called “fiscal cliff”, which is the estate tax exemption, is on course to fall precipitously in 2013 while at the same time the maximum estate tax rate is expected to rise. The net result of all these changes in tax thresholds is that many high net worth clients are being requested to consider giving away part of their wealth in order to take advantage of the current exemption just before this period lapses. The thing is with most of the exemption strategies in gift-giving often the least effective means is to give the gifts as cash. On the other hand, one can also use some of the other strategies such as the use of Family Limited Partnership (FLP) to acquire a valuation discount for the assets being gifted may be used. Some of the other ways to give away gifts include using the Intentionally Defective Grantor Trust (IDGT) and then use the trust as seed money to purchase different assets from the estate.
However, this is not usually the situation in most cases as there are different things that come into play when gifting away part of your estate. For instance, there are many important caveats that include the risk of an estate tax clawback as well as the affordability of the gift itself. You must also take care of the state estate tax laws that may be due on the estate. As such, it is very important for the high-end members of the population to determine whether they would rather give away part of their wealth or simply sit back and endure the tax burden that will be coming at the turn of the year.
Taking Advantage of the Current Gift Exemption: To start with, for a person to take advantage of the gifting it is important to know a few things. In essence, the basic principle that is behind gifting is to start by making a gift while the exemption is currently at $5.12 million. At the end of the year, the exemption will drop from $5.12 million to only $1 million. While, the exemptions that are set to expire at the end of the year, it is quite possible that the tax burden that an individual will have at the start of the next year will be very huge. Gifting is a way through which individual spread their wealth, not only to the people around them but also help themselves take care of the financial aspect of their estates. Gifting can also be done to a member of the family as well as to charities and other less fortunate members of the community.
While on the case of gifting away wealth, it is usually advisable to gift away pieces of property instead of cash. This is because it is a better way of spreading the wealth to future generations who may not be old enough to handle huge sums of money.