American families only have until midnight of December 31, 2012 to pass along assets amounting up to $5.12 million without fear of being taxed by Uncle Sam. Couples can give a combined gift of up to $10 million to their children – tax free. For wealthy families, this is a golden opportunity that should not be missed and an online article on Reuters lists 4 steps to “Get ahead of the coming gift-tax-apalooza:”
1. Get started now. Estate planning is not something that can be done within 24 hours. There are legal documents, appraisals, and emotional family matters to consider. Even if you start this July, you and your estate planning team would need to move quickly to complete the whole process by the end of the year.
2. Use trusts intelligently. Gifting is not a simple matter of handing over the keys to your house. Protect your assets by putting them in a trust, especially if your children are too young or inexperienced to handle the financial responsibilities.
3. Look to the future. Don’t look at the gift as it is now; instead, think of its potential for appreciation. “That’s because if you gift $5 million now, it could easily grow to become $10 or $15 million in the coming decades – and then that appreciation could potentially escape taxation as well.”
4. Don’t count on Washington. The exemption may be extended or a compromise between $1 million and $5 million may be reached – or maybe not. It’s hard to make predictions during an election year with so many other political considerations in play. The best thing to do is “plan for what the law is today.”
(Image courtesy of renjith krishnan)