Consider Making Annual Exclusion Gifts


From a estate and gift tax planning perspective, the end of the year is always a good time to make annual exclusion gifts.  Annual exclusion gifts can consist of cash, stocks, bonds, portions of real estate, or forgiving debt on a family loan in an amount that doesn't exceed the annual gift tax exclusion.  For 2011, the annual gift tax exclusion is $13,000 per person.  Married couples can take double advantage of the annual exclusion and gift $26,000.

Why is the end of the year a good time to gift?  If a person does not use his or her annual exclusion in a given year it is lost.  In other words, the annual exclusion does not carry over or increase the amount of an annual exclusion gift in a subsequent year.  Therefore, for people who are concerned about estate taxes, they can gift up to $13,000 to as many individuals as you choose before December 31, 2011, and then another $13,000 on or after January 1, 2012.  Married couples could do the same thing, but instead of $13,000, the amount would be $26,000.  Every dollar given away decreases the size of a person’s estate which means less tax is due at death.  Also, after a gift is made, any appreciation on the gift is also removed from the donor’s estate.  The current gift tax rate is 35%.  This means for every dollar gifted, there can be a 35 cent tax savings, plus the savings on the tax on any future appreciation.