This is the season of giving. So in that spirit, I want to provide some information to you about what it means to "gift" in the legal sense of the word.
The government always wants its share when you transfer property to another individual. When you give property during life, it may be subject to a gift tax.
When you transfer property at death, you may be subject to the estate tax.
Right now, however, you may give approximately $5 million during life or death to another individual without incurring federal estate or gift taxes.
This means that you can transfer $5 million tax free right now. Think of it as a "coupon."
But, like all coupons, this coupon has an expiration date. The amount is scheduled to decrease to $1 million at this month.
Therefore, right now is the time to take advantage of the federal estate and gift tax coupon. You can use this brief window to build a legacy for your children by gifting them assets, either directly or through a trust, in a way that minimizes the tax penalties.
Additionally, you can design the gift to provide for your and your children's abundant living now.
For example, consider the family ranch. An asset that is valuable, but not liquid.
If it is worth more than $1 million dollars and you pass away in January, the federal government will want your children to pay taxes for the portion of this asset that is worth more than $1 million. How will your children pay for the 30 or 40 percent taxes on this asset?
There are ways to set aside cash (such as a life insurance policy), but you may also consider giving them the asset now. Under the current rules, the entire value of the asset (up to $5 million) could pass to your children or heirs without the federal government taking any taxes.
This window of opportunity is right now. Congress is debating changing the gifting regulations as part of the fiscal cliff discussions, but we do not know what the exemption amount will be after Dec. 31.
However, with planning and foresight, we can design a gifting plan that builds rich legacies and abundant living for you and generations to come.
Cassandra Jones is an elder law and family law attorney in Gardnerville. She can be reached at 782-0040.