Take Advantage of Gifting for Tax Savings

Physician's Money Digest, May 2006, Volume 13, Issue 5

If you're like most Americans, you like to give giftsnearly as much as you like to receive them.Thankfully, there's a handy technique called giftingthat can potentially save your family, friends, andheirs a lot of money when you plan your estate. Notonly do you benefit from gifting, you also save futuregenerations from a heavy tax burden by reducing thesize of your estate. In addition to taxes, you generallyreduce the amount of probate costs and legal fees,which can often eat away your estate.

Guidelines for Giving

So what exactly is gifting? It's a technique that hasbeen used frequently by people to reduce the value oftheir estate. Gifting is exactly what it sounds like: agift of money or property that is given to a spouse,family member, or friend. Beginning this year, eachperson in the United States can give assets or propertyof up to $12,000. For any gift over this amount,the donor is generally responsible to pay the gift tax.

You can gift to any individual up to this amountwithout triggering the federal gift tax, and you cangift to as many individuals as you wish. Gifting isalso a great way to give assets that will appreciate invalue over the years. By gifting the appreciable assetnow, you can reduce the amount the asset will beworth in future years and reduce the taxable amountof your estate now.

Under federal law, you can gift to a spouse anunlimited amount of money or property each yearwithout paying any taxes; however, gifting to aspouse is not recommended in all situations, since itonly shifts the larger estate burden onto your spouse.One helpful technique is to team up with your spouseand gift to specific individuals, such as children andgrandchildren. Gift-splitting allows you to quicklyreduce your estate by a large amount. Both you andyour spouse together can give up to $24,000 to eachindividual without paying any gift tax.

Gift Exemptions

According to the IRS, the general rule is that anygift is considered a taxable gift. But exceptions doexist. In addition to gifts up to the annual exclusionamount and gifts to a spouse, tuition and medicalexpenses that you pay for someone else are not taxable.If you wish to give to political organizationsand qualified charities, these gifts are also tax-free.

There are a great many details involving taxes andgifting that remain to be seen. The tax laws and regulationsare extremely complicated, which is whyestate planning is best left to professionals. If you arecontemplating gifting to reduce your estate or wishto establish an estate plan, it is best to meet with afinancial professional and a qualified estate planningattorney to determine your options.

A little bit of careful planning can go a long way,saving your estate and your heirs thousands of dollarsin the future. Take advantage of tax savings nowby gifting to your loved ones, and choose the wayyou want to be remembered. Estate planning canhelp you leave a legacy that remembers your life forits accomplishments instead of courtroom battles.

Robert Valentine, CSA, of Huntington Beach, Calif, is with

Financial and Retirement Management, a registered investment

advisory firm. He is a registered representative of and offers

securities through Securities America, Inc, and is a registered

broker/dealer, member NASD/SIPC. He welcomes questions or

comments at 877-732-2637.