It’s not for everyone, but certain people can save a lot of taxes by making large gifts to family members or others before the end of 2010, and paying a gift tax on the transfer.
In general, you can give up to $13,000 to as many people as you like each year without having to pay gift tax. Also, you can give up to $1 million above that limit over the course of your lifetime, and defer the tax. You won’t have to pay gift tax now, but the amount of the gift will reduce the credit that can be taken against estate taxes when you die.
Once you’ve used up the $1 million, any further gifts result in a gift tax bill that’s due right away.
Why should some people make large gifts now and pay the tax? Because for the rest of 2010, the gift tax rate is “only” 35%. After the year ends, the gift and estate tax rate shoots up to 55% (unless Congress changes the law, which is possible).
So by making gifts and paying the tax now, you may be able to get a much better tax rate than if you make gifts later, or make bequests in your will.
You should consider, though, that if you make a gift and die within three years, the advantage of this tax break is reduced because the amount of tax you paid will be considered part of your estate for tax purposes. Your family won’t be any worse off tax-wise as a result of the gift, but this is still something to consider.
Please feel free to call if you would like advice on how this idea applies to your specific situation.