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The Federal Lifetime Gift Tax Exemption (hereinafter the
"Lifetime Gift Exemption") is that amount which
(cumulatively), under federal tax law, may be transferred free of
federal gift tax by an individual during his/her lifetime. (This is
in addition to the annual gift tax exclusion amount of $13,000
which can be given to any person gift tax free during calendar year
2012 and, in addition to the gift tax exclusions, available for
payments made for medical expenses or tuition for the benefit of
any individual.)
Any amount of the Lifetime Gift Exemption used during lifetime
will reduce the amount of the federal estate exemption amount
available to that individual's estate upon his or her
death.
The current amount (for calendar year 2012) of the Lifetime
Gift Exemption is $5,120,000.
By using the current $5,120,000 Lifetime Gift Exemption, a
husband and wife together can make tax free gifts in the total
amount of $10,240,000 during calendar year 2012.
Beginning January 1, 2013, the Lifetime Gift Exemption amount
will decrease to the amount of $1 million dollars (under current
law). Therefore, a husband and wife will only then be able to give
a total of $2 million dollars gift tax free (a large decrease from
the $10,240,000 which can be given gift tax free during calendar
year 2012).
If the $5,120,000 Lifetime Gift Exemption is NOT utilized by an
individual during calendar year 2012, then unless Congress changes
the law, the amount of the Lifetime Gift Exemption which exceeds
$1,000,000 (ie: $4,120,000 for such individual) will be
wasted.
Strategies for using the $5,120,000 Lifetime Gift
Exemption:
Outright gifts (or gifts made in trust) to or for the benefit
of children, grandchildren, family members and others.
Transfer of cash or other assets to existing trusts, for
various reasons including the payment of life insurance premiums
for insurance policies held inside the trust or using fractional
discounts to move larger amounts of non-liquid assets.
Forgiveness of unpaid loans to children and others.
Gifts and Sales to Grantor Trusts (trusts which for income tax
purposes are considered owned by the creator of the Trust).
Consider moving primary residences or vacation homes into
specialized trusts called Qualified Personal Residence Trusts.
Can be used by same-sex couples to transfer assets to each
other without gift tax consequences.
Assets can be transferred to a Lifetime Credit Shelter Trust
for the benefit of a spouse.
Note: The Lifetime Gift Exemption amount is reduced by
any taxable gifts made by an individual prior to 2012.
Note: Using the Lifetime Gift Exemption amount can save
significant NYS Estate tax (upon a donor's death) by removing
assets from a donor's estate for NYS Estate Tax purposes.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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