Gifts & New York Estate Planning

April 17, 2012

Passing on wealth to subsequent generations is a crucial part of New York elder law estate planning. At times, giving assets to others as a gift may be an important part of that strategy. While giving a gift may seem like a straight-forward step, in the overall estate planning process it comes with various complications. Tax consequences are at the heart of gifting, and so it is vital to understand how gifts fit into an overall asset transfer plan.

Giving gifts to others is one helpful way to lower a taxable estate. After all, if assets are given away while one is still alive then the total value of one's estate at death will be lower leading to a smaller tax burden. If an individual planned on giving the asset away at death anyway, why not give it away while alive to save on taxes.

However, it is not necessarily that easy. For one thing, there are limits to what can be given as a gift tax-free each year. Under current law, transfers up to $13,000 per year per person are tax-free. Married couples can pool their exemption and give $26,000 to a person each year without paying taxes. Over a lifetime, the gift tax exemption is connected to the estate tax exemption. Right now the lifetime exemption level is $5.12 million. In other words, currently an individual can give away $5.12 million total without paying taxes while alive and the total amount given away will be applied to the estate tax exemption level at death for estate tax purposes.

In addition, there are some transfers that are always exempt from the gift tax. Gifts to spouses, academic institutions, and medical care providers often escape the tax. Transfers to political organizations and charitable organizations are also exempt.

Our New York estate planning lawyers often help clients figure out if gifting is a helpful part of their own planning process. It can become a complex determination. Sometimes even figuring out the value of the gift can be tricky. Real estate and antique gifts must be appraised. Stock values are an average of the high and low price on the day that the stock is given away. The value of a bond is the present value of its future payment.

In addition, some transfers that might seem to be gifts are not. Most notably, "future" gifts generally do not apply and are fully taxable. For example, if a property is gifted to another but with restrictions on when that property can be used for a period of time, then the gift may not apply for the gift tax exclusion.

It is obviously crucial to have professional help to avoid these and similar issues when working out an overall transfer strategy.

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