Don’t Wait Until It’s Too Late: Year-End Gifting Strategies By Andrew T. Schlosser

 

 

Now that trees are dropping their leaves and temperatures are steadily falling, you might think that tax time is as far away as those first balmy spring days. However, the end of the calendar year is rapidly approaching, and now is the ideal time to address tax issues such as annual gifting programs and charitable contributions. 

 

By implementing an annual gifting program, you can significantly reduce the size of your estate and accordingly reduce the amount of estate tax due at your death. Each year, you are able to give up to $10,000 to as many people as you wish. These gifts are completely tax-free, and do not even require a gift tax return to be filed (although filing a return can actually be beneficial in many circumstances). Since this is an individual exclusion, you and your spouse can give a combined gift of $20,000 per year to any person (or $40,000 per year to another married couple!), resulting in an even faster reduction in future taxes. Not only will your heirs get this money free of estate tax, they will also receive the benefits much sooner than if the inheritance was tied up in your estate until death. If an outright gift is not appealing to you, certain trust arrangements can also be used while still qualifying for the annual exclusion. But remember, these gifts must be completed by December 31st or your annual exclusion for 2001 will be gone forever. 

 

December 31st is also the deadline for completing any charitable gifts you may want to deduct on your 2001 income tax return. When making these contributions, remind yourself that you shouldn’t immediately reach for the checkbook. Instead of cash, you may want to consider giving shares of appreciated stock or other appreciated assets. If the appreciated assets are long-term capital gain property, you will receive a deduction equal to the fair market value of the asset, but with the added bonus of avoiding tax on your capital gain. For example, if you purchased stock for $1 in 1999 and transfer it to charity in 2001 when the market value is $10, you will receive a $10 deduction and never have to pay tax on the $9 appreciation. Then you can reach for your checkbook and, with the cash you held back, purchase other stock or assets at an increased basis. On the other hand, if your appreciated assets are subject to tax at ordinary income rates rather than long-term capital gain rates, your deduction will be limited to your basis in those assets. Therefore, it is wise to review not only the amounts you plan to give to charity each year, but also the type of assets being given. 

 

With either charitable giving or annual exclusion gifts, the key is to give yourself enough time to review your current plan and take the necessary steps to properly implement that plan. If you need assistance with any of your gifting programs, or if you have questions about gifting strategies in general, please feel free to call any of our estate planning attorneys.

 

 

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