There is a rare opportunity available now to make use of the $5.12 million exemption for both estate and generation-skipping tax. This exemption probably will expire on January 1, 2013 when the “fiscal cliff” automatic spending cuts go into effect and the Bush-era tax cuts are repealed. For those with more than enough assets to meet their needs, you have an opportunity to remove assets from your estate tax-free along with the appreciation in those assets between now and the date of your death. The Tennessee legislature repealed its gift tax earlier this year, making this an especially good time to act.
There are many different ways to make this gift:
- Write a check, or several checks, to your loved ones.
- Transfer money or securities to a generation-skipping trust for your children and grandchildren.
- Create a new trust and transfer assets to it.
- Transfer real property.
Whatever you do, don’t do it alone. Get advice from an estate planning attorney, a financial advisor, an accountant, or preferably a team that includes all three. Make sure you keep enough to cover your own needs for the rest of your life.
Even though the gifts will be tax-free now, you must file a federal gift tax return on April 15, 2013 to report these gifts to the IRS. The gifts will be counted against the amount that you can leave tax-free at your death. If you think you would like to explore this option, make an appointment with your financial planner or estate planning attorney as soon as possible. Time is growing short to do the planning and make the transfers before the end of the year.