Time is running out: Why you should start gifting now

Properly preserving your assets is something that most Americans would like to think they are doing well; or, are trusting the right people to do it well. The Estate Tax in the United States is extremely high and, if you're not careful, as much as 50% of your wealth can end up going to the state or federal government. So what can you do to prevent that from happening? The answer is gift now. The Gift Tax Exemption For 2012, the Gift Tax Exemption is $5 million for individuals and $10 million for married couples. With the increasing pressures on Congress to reduce the Federal deficit, we believe that the gift exemption will be significantly lower next year. The beauty of this once in a lifetime opportunity is that if you give an heir $1 million today, over time that money may grow to $5 million and you won't have to pay taxes on that money because it was gifted. AND, your heir gets to keep all the money. Taking advantage of this tax break will ensure your hard earned money is in the hands of loved ones rather than in the government's pockets. Having peace of mind that your money is where you want it to be is priceless. Family or closely-owned businesses can take advantage of this, as well. Instead of gifting cash, they can gift stock to family members who are next in line to run the business. They can re-capitalize the company by gifting the stock to other family members making them shareholders with non-voting rights. This enables management to maintain control until the appropriate time. Case Study After sitting down with client ABC Construction, we learned that the owner's 27-year-old son had expressed interest in someday owing or running the family company. In addition, due to the economic status of the construction industry, many valuations are at a very low level. And if the amount of ownership being gifted represents minority interests, significant discounts can be taken on that value as well. This made our client's decision to "gift" some of the company stock to his son an easy one. In order to address the client's needs for this particular situation it was important to set up a gifting program. We made sure to gift $5 million worth of stock to his son and explained that if he added his wife as an owner as well, they could gift up to $10 million, preserving more of the company worth. For Mr. Client, that meant he was able to gift 40% of the company stock to his son, tax-free and retain control of the Company. All future appreciation in the value of that stock will never be subject to the Estate Tax. Are You Ready? It is important that you are ready to part with your money. Gifting valuable assets to your family members is sometimes difficult to do, but the consequence of not gifting, can be very expensive to your family. It is sometimes hard for people to say goodbye to something they hold dear; however, don't let emotions get the best of what needs to be a sound decision. How To Get Started The easiest way to implement a gifting program is to gift the company stock to your children. You will need to get an appraisal to value the gift for gift tax purposes. Additionally, you will need to file a gift tax return. Alternative Methods As an alternative to outright gifts, the gift of a stock can be turned into a trust. A trust allows you to maintain control over the trust assets and you can dictate the access the beneficiary has to the trust. Trusts also protect money from creditors of all kinds as long as the money stays in the trust. It is always best practice to consult your financial and legal advisors to keep track of changing gift and trust rules and regulations. They should guide you on how to invest the money so the value of the trust is preserved over time. It is also encouraged to act quickly and take advantage of this unique gifting opportunity before the law changes...again. Rick Gavin, CPA, CCIFP, is partner and Barry Sunshine, CPA, MST, is tax partner for Grassi & Co., Jericho, N.Y.