By: Martin M. Shenkman, CPA, MBA, JD
Why Make Gifts?
How can giving money or assets away help you? Many estate planners, elder law attorneys and even accountants, recommend that you gift away assets. We spend most of our lives trying to accumulate enough assets for retirement and later years. It sounds counter intuitive that giving away assets, can be beneficial, but it can be. Making gifts can help you in a number of ways:
√ Save Tax. It can reduce the size of your taxable estate thus saving estate taxes. This won’t apply to many taxpayers under the current system since the estate exclusion has increased in 2009 to $3.5 million. However, many states have lower tax thresholds so you might realize a significant state estate tax savings even if you won’t be affected by the federal tax.
√ Helping those you care about. If a child, nephew or other friend or loved one has been hurt by the recession, helping them financially through a tough time can be rewarding.
√ Income tax benefits may be realized in the future. If you give income producing assets (e.g., stocks and bonds) to someone in a lower income tax bracket there can be an income tax savings compared to your receiving that same income. If the donee lives in a different state that has a lower or no state income tax, the savings can be greater. If or when the Obama administration increases marginal income tax rates the benefits of this type of planning will increase. Caution: The Kiddie Tax makes children under 18, or under 24 if a full time student, report income at their parents higher tax rate so there might not be any savings. IRC Sec. 1(g).
√ Elder law. To qualify you for government benefits or protect asset from nursing home and similar costs. Caution: The rules are complex and vary by state. If your goal is to protect assets from nursing home costs, etc. be certain to consult an elder law attorney in your state.
√ Charity. No list of reasons to give could be complete without charity. Tax benefits for charitable giving (income tax, gift tax and estate tax) can be significant. But in addition to any tax benefits (which are always worth planning for), and regardless of the state of the economy, giving to charity is what makes us human.
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