The Tax Relief Act of 2010 provided individual taxpayers with, among other things, the ability to gift $5 million free of gift tax.

 But the provisions in the Act are due to expire on the last day of 2012. It is unclear whether any provision will be extended into 2013 and beyond, so it is important to take advantage of the generous exemption while we are certain of its availability.

If you own private business interests or other rapidly appreciating assets, and would like to gift those to the next generation at the lowest possible tax cost, you may want to act sooner rather than later. The Tax Relief Act of 2010 included a 400 percent increase in the lifetime gift tax exemption, from $1 million in 2009 to the current $5 million ($10 million for a married couple). These provisions are due to expire on the last day of 2012. If you are considering a gifting strategy, you are wise to start exploring your options now, while you have time to carefully consider, since giving away assets requires careful thought and planning,

There are several strategies we could use to maximize the value of the exemption, to include an advanced strategy known as an installment sale to an Intentionally Defective Grantor Trust (IDGT). Gavin Morrissey of Commonwealth Financial recently wrote in detail about how this strategy works. The bottom line is that this complex strategy, when properly executed in the proper circumstances, can result in quite significant tax savings.  As Morrissey points out, the strategy works best when the assets to be transferred are rapidly appreciating – such as private business interests or pre-IPO stock.

Reference: ADVISORONE.COM (June 15, 2011): Estate Planning: Time Running Out on $5M Gift-Tax Exemption.


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