Give Yourself a Gift and Use Your Annual Exclusion

The gift tax exemption increased from $1 million in 2010 to $5 million in 2011. Thus, 2011 may be the opportune time to transfer assets to family members who are in a lower income tax bracket.

The end of the year is a good time to consider gifting as part of the estate planning process. Gifting not only reduces the size of a taxable estate; it also passes assets to the next generation with estate and income tax benefits.

Currently, an individual can give up to $13,000 per recipient each year without incurring a gift tax consequence. Using annual exclusion gifts, a married couple can give up to $26,000 per year to any one person. While one is limited by the amount they can give to an individual without making a taxable gift, there are no limitations to the number of people to whom the gifts can be made.

These annual exclusion gifts can be direct gifts of property to your child, grandchild or other individual. The property can be cash, marketable securities, closely held stock, real property or tangible personal property. The gift can be made to a trust for the benefit of individuals that can be held to fund education or other purposes. Gifts in trust can leverage the annual exclusion by using discounted assets like closely held stock or partnership interests, or through the use of assets that are expected to appreciate.

A 529 college savings account can also maximize the annual exclusion gifts. A 529 account offers the opportunity to accumulate funds for future college expenses on a tax-deferred, even tax-free basis. An exception in the gift tax law permits five years of annual exclusion gifts to be made in the first year of funding a 529 account. Thus, an initial contribution of $65,000, or $130,000 for a married couple, can fall within the annual gift tax exclusion.

Tuition, medical expenses and gifts to political organizations paid directly to an institution are excluded from gift taxes and are not part of the $13,000 per donee annual exclusion. Transfers between spouses who are United States citizens are also free of gift taxes. In addition, there is an unlimited gift tax exclusion for each charitable gift.

Charitable gifts can be direct gifts of assets to a charity or indirect gifts through a trust. The establishment of a charitable gift annuity or charitable remainder trust can be used to fulfill a substantial gift to a charity, while generating a stable annual cash flow during one’s life.

The end of the year presents an opportunity to implement annual exclusion as well as charitable gifts. While considering gifting opportunities, a review of your existing estate plan is essential to ensure compatibility with current goals and objectives. We welcome the opportunity to review your estate plan to determine if gifting will benefit you. Please call your Stark & Knoll attorney at 330-376-3300 or email for more information.

Stark & Knoll Co., L.P.A. 3475 Ridgewood Road Akron, Ohio 44333-3163
Phone: 330-376-3300 Fax: 330-376-6237

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