Comment: There is a BIG LOOPHOLE but time is running out.. 12/31/2012

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There is a BIG LOOPHOLE but time is running out.. 12/31/2012


Jim Sinclair’s Commentary

The forgiveness of gift tax on family wealth transfers up to $5,000,000 is going to die in less than 90 days.

I do not believe that any thinking political person can walk up to the fiscal cliff and just let it happen. At the least it will get the can kick down the political road as neither candidate wants the bill this event will carry. There is one tax deduction that I feel will not survive the can kick. It is the ability to transfer wealth to your family free of gift tax. In my opinion, I see October to December 31, 2012 as the end of being able to give up to $5,000,000 to your family members without being charged any gift tax. All of us work for our families and take great pride in seeing them succeed. In three months I expect the end forever of this tax break. Forever being defined as our lifetimes.

One way is to give some of your wealth to family members when we are still alive and able to see how they handle it. If they know this is a test, and their inheritance will be based on your review of how they handled money, they might just make you proud. Regardless of the amount you do, I feel it is better than enriching children upon your demise when you are not here to guide them or rate how they did. Think about it as it has less than 90 days to live, in my opinion no matter who is elected.

Tax-Free Gifting Strategies
Posted on November 15, 2011 by Financial Advisor

2011 Is a Good Year to Think About Tax-Free Gifting Strategies.

We all know that it is better to give than receive, but if possible, it can be even more advantageous to give and be tax savvy about it too! It is that special feeling in your heart from giving that makes it all worth it, but at the same time, there is nothing wrong with looking at tax smart ways to give as well. Even if you are not a famous philanthropist like Bill Gates, or members of the Rockefeller family, gifting money to your children and grandchildren can be a goal of yours.

In today’s confusing world there are several common strategies that you can use that allow you to gift some of the assets you have accumulated in your estate which in turn could possibly reduce the tax debts on your heirs when you pass. With proper gift planning it is possible to be generous and tax efficient at the same time.

Estate and Gift Taxes

Once your net worth exceeds a certain amount, your estate may be subject to estate taxes. Currently, an individual can gift up to $5,000,000 federally tax-free during their life or when they pass to a non-spouse beneficiary. If you are married, you can gift up to twice this amount, or $10,000,000. That is the federal amount that can transfer federal tax-free to non-spouse beneficiaries. This number is called the basic exclusion amount. (There is no limitation for a spouse to gift to their spouse as long as their spouse is a U.S. citizen.)

While exchanging or gifting large amounts of money to your spouse is considered tax free, this is not always a best solution to reducing your taxable estate. Unfortunately, this transfer could potentially increase the amount of tax you can potentially impose on your spouse’s estate. Gifting assets to your children, or grandchildren and other non-spouse beneficiaries is treated differently; however, there are still various ways you can provide some tax-free gifts for these special beneficiaries.

Unfortunately, today’s generous exclusions only apply for two calendar years. In 2013, unless Congress changes the current law, the federally tax-free amount will revert back to $1,000,000 per person, and the federal tax rate for many estates can go up to 55% (compared to the current maximum rate of 35%).

Many people are surprised when they learn that the gift tax is paid by the giver and not the receiver! It is sometimes hard to believe that the person making the gift is also the one that has to pay out of pocket any of these additional gift taxes. Talk about being generous!

In addition to all these federal taxes, you should investigate whether the state in which you reside might also tax your estate. Currently 16 states and the District of Columbia have an estate tax.