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| MAKING GIFTS TO HEIRS DURING LIFE Having a highly taxable estate, the businessman told me that he had given each of his four children stock in his business which had appreciated in their estates to the point that each child now had stock worth $10 million. Each of his children was married and each had two children. The stock had appreciated, for the last three years, at the rate of 24% per year. I asked if the four children had made gifts to their children. "No," he replied. "How will that help us?" I explained that each of his children could give to their children, or to a trust for their children, at the present time ... and that this strategy would place the growth of the stock into the estates of the grandchildren. In other words, it would be taxed at about 25 years later than the children's estates. "How much can they give?" he asked. Of course, each of the four children could move a total of $1,240,000 the first year ... and $40,000 each year thereafter with no tax obligation. Here's how. Each of the four could give his or her lifetime exemption amount of $600,000. They could then give their spouse an equal amount and he/she could give the additional $600,000 to the children. Remember, the lifetime exemption amount can be given in life or left as a legacy at death. It is usable in life or death. Then, the businessmen's children could give $40,000 as annual exclusion gifts. By having their spouses sign a gift tax return noting that the $10,000 annual exclusion gift was being given to each child from each parent's exclusion, a couple with two children can give $40,000 each year to the children with no tax obligation. After I explained this procedure to the businessman, he replied, "We've been paying $400 per hour for estate planning advice and have not been told of this means of tax avoidance." In this case, the gift was a gift of stock. It could be a gift of cash, partnership shares or anything else of value. Making gifts to heirs during life is an excellent estate planning device ... and should be used by many more planners. Remember, each gift of $10,000 can save as much as $5,500 in federal gift tax. |
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