2012: a good year for giving.

February 16, 2012, by

TE BLOG.Cash gift.02.03.2012.iStock_000015406963Small[1].jpgAs we have seen uncle Nils has given $500,000 of his assets to a new trust for relatives, placing Lars in charge of it as trustee.

This is a good year for Nils to make the gift, due to many factors. The most obvious, to Nils and Lars, is that the Federal exemption for making gifts (without paying gift tax) was increased from $1 million to $5 million for years 2011 and 2012. This law is to be revisited in 2013 and we don't know what Congress will do then.


There are other factors favoring gifts in 2012:

• Asset values are off what they were a few years ago. If good investing times return, the gain on assets given away will occur outside the taxable estate of the giver, rather than within it.

• Congress might also revisit current law permitting valuation adjustments for lack of control and lack of marketability of family-owned interests. These adjustments allow more efficient use of gift and estate tax exemptions.

• Interest rates are low now for loans and sales of assets to future generations. So even if a giver wants some modest return on the assets transferred, he or she may keep the interest rate low without having that benefit considered a gift in itself.

• In Washington at least, there is no State gift tax. So where the Federal rules bring large lifetime gifts into the eventual calculation of the estate tax, Washington ignores them. A gift made during lifetime thus can avoid State taxation altogether.

We'll try to quantify the benefits of lifetime gifts in the next blog entry or two.