This Gift-Tax Change Is a Huge Gift -- If You're Wealthy Enough

One of the biggest intergenerational transfers of wealth in U.S. history could potentially take place over the next two years as an expansion of the gift-tax exemption creates a short-term opportunity for the wealthy to transfer assets now and avoid estate taxes later.

For 2011 and 2012 only, the gift-tax exemption increases from $1 million to $5 million, allowing individuals to transfer five times more assets to relatives without penalty. It's estimated that the federal government could lose as much as $68 billion in estate and gift taxes as the wealthy rush to capitalize on this temporary change in the tax code.

The new law amounts to another tax cut that most Americans won't be able to take advantage of. However, to the extent that wealthy people transfer assets to relatives who aren't so wealthy, it could have a positive affect.

Kevin Sanderford, principal of Colorado West Investments in Montrose, Colo., says older individuals with estates valued at more than $1 million and couples with estates valued above $2 million should consider taking advantage of this change. He's advising his high net-worth clients to begin executing asset transfers and business succession plans that previously had much longer time horizons.

The benefits include being able to transfer a greater amount of assets tax-free before you die and saving relatives millions of dollars in estate taxes before the law reverts back in 2013. In 2013, the gift tax goes back to the $1 million exemption, and the estate tax rate jumps from 35% back to the 55% rate that was in place prior to the Bush tax cuts. That is, unless new tax cut legislation is passed. (For more about what else is new in the tax code this year, check out WalletPop's Tax page.)

"This allows people to give away more money and assets to kids and keep things in the family," says Sanderford. "We are a talking about intergenerational wealth transfers, and the opportunity exists now. I don't think the opportunity will exist in the future"

With the new change in the gift tax, individuals could give away $5 million in 2011 or 2012 and not have to worry about paying estate taxes later. People can give away real estate, jewelry, family heirlooms, cash, stocks, bonds and even businesses.

"Some of my clients have businesses, and if their kids have to come up with $3 million or more to pay taxes, where does that money come from?" Sanderford asks. "Avoiding taxes makes it easier for that business to go from one generation to the next."

To get the maximum benefit of the asset transfer, Sanderford suggests gifting assets that will appreciate the fastest. For example if you are considering gifting either timber land or a condo in New York, he says gift the condo.

"Sit down with a CPA and tax attorney and do some planning," he says. "This is a huge opportunity with a two-year window."

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Frankieboy, if you leave the HP to her in your will, the tax event ( based on market value ) is when you pass away subject to the exclusion at the time, which in 2011 & 2012 is $5M, back to $1M in 2013. If you gift it to her, subject to the lifetime gift exclusion at the time, the tax event is when she decides to sell it based on your cost, before or after you pass away.

March 01 2011 at 6:01 PM Report abuse rate up rate down Reply

The adjustable rate mortgage that I had before had me nearly to the brink of bankruptcy because of the never-ending payment increases. Now I have 3.18% fixed rate. I would absolutely recommend "123 Mortgage Refinance" I worked with to anyone I know planning to refinance mortgage.

March 01 2011 at 6:13 AM Report abuse rate up rate down Reply

It would help if people here understood estate taxes. While they can be a double tax, they ALMOST NEVER are a double tax. The reason is that money in an estate is generally money that has never been taxed because there has been no taxable event. Since people with estates of $10 million and more are smarter than most of the right wing "aspirational" rich people here (who aren't rich yet), they specifically design their estates to gift/bequeath assets that haven't been taxed yet while spending and otherwise disposing of assets that have been taxed. For example, if I bought $1 million in HP stock in 1995 and it's worth $6.5 million today, I don't pay tax on my $5.5 million gain until a taxable event like a SALE. Until I sell the stock, I pay NOTHING in tax. You, idiot aspirational rich person who probably makes $175,000 a year and pays full "payroll" tax on the first $108,000 and otherwise has a pretty bad tax deal probably pay 25 to 30% or so of your entire income in federal taxes (and payroll taxes really are effectively income taxes since they steal that money and spend it on general tax fund expenses). If I pass my $6.5 million in HP stock to my daughter, the estate tax laws say that SHE GETS NOT MY BASIS OF $1 MILLION WHEN I ACQUIRED THE STOCK, BUT THE STEPPED UP BASIS OF $6.5 MILLION AT THE TIME OF MY DEATH. She pays ZERO tax on the capital gain and I paid ZERO tax on the capital gain. She must pay on any appreciation in the stock over her $6.5 million tax basis, but both of us just legally evaded 100% of the federal income and capital gains taxes on $5.5 million in income. We pay not ONE PENNY in federal tax. Not income tax, not capital gains tax, not payroll tax and not estate tax. But a guy working as the manager of a McDonalds who gets paid $18,000 a year probably pays 20% of his income in taxes when you take into account the payroll tax, which is really an income tax because they spend it on general budget expenses and have no intention of paying back the stolen $3 trillion in the social security trust fund. So I hope that you aspirational rich people really become rich because the rules are really great once you're here! I hope you support the ongoing tax free fabulousness of the rich because you too may someday be rich! No, really! If you keep making $175,000 a year and save every last penny and don't spend a dime, after taxes (assuming a 25% rate), you will have $6.5 million in only FORTY NINE YEARS. You are on your way, aspirational rich people! All you have to do is make sure to work into your mid 80s and NOT SPEND ONE PENNY until then - live in a tent in the park or something. You are just like the rich... in your own minds.

February 28 2011 at 2:53 AM Report abuse +1 rate up rate down Reply
1 reply to frankieboy90036's comment

Hmmmm? Where do you suppose that hypothetical $1 Million came from???? It was earned and is the net after taxes you Moron! I am a second generation owner of a small manufacturing business that employs 120 skilled non-union people. Estate taxes kill businesses such as mine, according to you liberals I am rich! When my father and mother pass, no matter what our Estate Tax Attorneys have done, it will negatively impact our business and our employees! And why? Because you liberals are jealouos of invidual success? You want to take my hard earned money and assets to redistribute to yourselves! Our family has earned what we have and paid above the level wages and benefits, onerous State and Federal Taxes and had to bear regulations and government costs that my foreign competitors do not have! We have bared those burdens all the way, and then you want to take that away because a generation dies? Pathetic, if you wish to live in a redistributive society, I suggest you move to China!

February 28 2011 at 12:41 PM Report abuse +1 rate up rate down Reply

Obama is just now figuring out he and big business is in bed together, how long do you figure it'll take him to figure out he can't tax the US into properity?

February 27 2011 at 9:01 PM Report abuse rate up rate down Reply

"THE WEALTHY ALREADY PAY INCOME TAXES AT TWICE THEIR SHARE OF INCOME".....LOL! ........there are a lot of 'good ole boys' on here that think that you are a 'master linguistic'......Your statement means nothing!......Let's take a closer look! The top 1 percent paid about 5 percent of their incomes in state and local taxes, while the bottom 50 percent paid approximately 10 percent, TWICE as much proportionally!!! The top 1 percent pays just under 2 percent of their incomes toward social security, while the bottom 50 percent pays about 9 percent. The bottom 50 percent is paying about 2 percent of their incomes on federal excise taxes, a negligible expense for the people at the top. The scheduled ex-president cheney tax cuts for 2009-2012 will chop another 2-4 percent off the taxes of the very rich.....Based on the cold facts of statistics and percentages, the poor are paying a greater than average share.....So, Cry! Cry! Cry! me a river.....I cried a river for you!

February 27 2011 at 5:55 PM Report abuse +4 rate up rate down Reply
3 replies to gardeningatnite's comment

Thank you Barry.

February 27 2011 at 4:53 PM Report abuse -1 rate up rate down Reply

I'll bet another thing that gripes liberals to no end is the fact that 40 billionaires have pledged to donate half their wealth to charity, which deprives the govt of its piece of the pie.

February 27 2011 at 4:14 PM Report abuse -1 rate up rate down Reply
1 reply to drp1415's comment

Everybody is focused on all that money,.....but what nobody is talking about the quality of giving, who will it go to?... Will it go to those who are in most need in our society? We all know that the very rich tend to donate to wealthier institutions, such as universities, hospitals and the arts, rather than to smaller non-profits that help the poor and disadvantaged....'Trickle-down' economics is not all that it is cracked up to be???

February 27 2011 at 7:55 PM Report abuse +2 rate up rate down Reply

It's mind boggling to think there are people out here who believe that rich people shouldn't be entitled to pass their wealth onto their kids simply because they didn't earn it. Where do liberals come up with this stuff?

February 27 2011 at 4:09 PM Report abuse rate up rate down Reply
1 reply to drp1415's comment

Maybe from watching Paris Hilton.

February 27 2011 at 5:13 PM Report abuse +4 rate up rate down Reply

Amazing. "Allowing" people to keep their own money in their own family is a "gift." Why don't we just raise the tax rate to 100% on everyone. That way the government wouldn't be "losing" so much money due to those darn loopholes!

February 27 2011 at 3:27 PM Report abuse +1 rate up rate down Reply
2 replies to usmcqtco's comment

More 'linguistics'???.......the richest 1 percent of Americans in 2000's garnered the highest share of the nation's adjusted gross income for two decades, and possibly the highest since 1929!!!....P.S. tell us more about the 'loopholes' that the lower and middle classes are constantly using!

February 27 2011 at 6:04 PM Report abuse +3 rate up rate down Reply

Yah, Gardeningatnite! And those rich quite likely employed a lot of people with private sector jobs! Moron!

February 28 2011 at 12:02 PM Report abuse +1 rate up rate down Reply
Jan C. Powers

The author of this article says the govt> stands to LOSE 68 billion dollars, I say they shouldnt bestealing Americans money, why should they tax money thats already been taxed a couple of times once you give it to a family member?How has this tax sham been perpetuated for so long?Crooked fuckin politicians!

February 27 2011 at 3:06 PM Report abuse +1 rate up rate down Reply