It is generally said that only two things are certain in life: death and taxes. 2011 seems to be the exception. We are nearing the end of 2010 and we still don’t know how dividends and capital gains will be taxed or what the property tax rate will be in 2011. This makes it difficult for anyone to make a precise financial plan for next year. year. One thing we know is that today’s economy has depreciated investment and real estate. This makes it a great year to give away assets at very reduced tax costs.
Free transfer of property ownership will result in gift tax. However, there are two exceptions to the gift tax. First, gifts of up to $13,000 per person per year (in 2010) are not taxed. In addition, one can give gifts of up to this amount to as many people as he wants each year. The exemption allows married couples to combine individual gift exclusions and gifts of up to $26,000 per recipient per year without incurring a gift tax liability. There is a lifetime gift limit of $1,000,000; any gift beyond that amount is subject to gift tax.
Consider 2010 as a good year to be generous. Generally, any gifts you give now and all future awards will be removed from your estate upon your death and are not subject to property tax. The decline in the stock and real estate markets created discounts for almost all asset classes. As a result, now is the time to consider awarding very low-value assets. When the economy recovers, these assets will begin to increase in value, and future appreciation will occur outside of your property. The maximum gift tax rate is currently at an historical low of 35%, and under existing law, the rate will be raised to 55%. Congress is expected to enact legislation to reduce the increase, but there is no guarantee that this will happen. That’s why you should consider giving large gifts to children and grandchildren, even if it may mean paying gift taxes.
Another tax benefit for gift giving in 2010 is that while there is also no generational transfer tax (GST), the tax has been repealed for the year only. The GST tax is a separate tax that applies, in addition to inheritance or gift taxes, on transfers to grandchildren or future generations. This tax is imposed at the highest property tax rate and is intended to replace property taxes that were actually avoided in the generations passed. The GST tax is expected to be reinstated next year at a rate of 55%. Therefore, the end of 2010 is the right time to give gifts to grandchildren and descendants of the younger generation. Grants can be made directly, in the form of a Limited Liability Company, Limited Partnership or Trust.
Given the uncertainty of current economic and tax laws, caution and thorough thought is required to implement financial and estate plans. At a minimum, wise individuals need to review their current estate plans, and seek advice from their estate planning attorney or tax advisor to ensure that it is consistent with their goals and objectives.