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Estate Planning Update
August 2011
Greetings!

Is your gift taxable?

It depends.

Income Tax

 

Your gift is not taxable income to the recipient.

 

Gift Tax
 
You may owe gift tax if your gift does qualify for an exclusion or exemption under the Internal Revenue Code.

If your gift is for charitable, educational or medical treatment purposes, it may be qualify for an exclusion, provided that specific rules are followed. Otherwise, you have made a taxable gift.

You may gift up to $13,000 annually to each recipient tax-free, provided your gifts are of a present interest. However, gifts of a future interest do not qualify as annual exclusion gifts.

Under current law, the first $5M in cumulative lifetime taxable gifts are exempt from gift tax. However, if Congress does not enact new legislation, the gift tax exemption amount will drop to only $1M on January 1, 2013.

Under current law, taxable gifts that are not covered by your lifetime exemption are taxed at 35%. However, if Congress does not enact new legislation, the gift tax rate will jump to 55% on January 1, 2013.

Generation Skipping Transfer Tax
 
If you make a gift to someone who is more than one generation younger than you - a grandchild, for example - your gift may be subject to the generation skipping transfer (GST) tax, as well.

Under current law, the first $5M in cumulative lifetime gifts that skip a generation are exempt from GST tax. However, if Congress does not enact new legislation, the GST tax exemption amount will drop to only $1M on January 1, 2013.

Under current law, GST gifts that are not covered by your lifetime exemption are taxed at 35%. However, if Congress does not enact new legislation, the GST tax rate will increase to 55% on January 1, 2013.

This Unique Gifting Opportunity Is Temporary
 
Due to the ephemeral nature of the higher exemption amounts and lower tax rates currently in effect, you have a unique opportunity to make increased gifts without paying transfer taxes and to make further gifts at a reduced tax rate, provided that you act soon.

Please contact me at 323.654.9513 or brookspaley@paleylaw.com if you would like to discuss your current estate plan.

Brooks Paley, J.D., LL.M.
About Paley Law Corporation
Brooks 0168

Paley Law Corporation is based in Los Angeles and specializes in providing personalized, sophisticated estate planning and related legal services. Brooks Paley, J.D., LL.M., is the managing principal of Paley Law. Brooks is quoted in the June/July 2011 issue of Working Ranch Magazine ("Death Tax Tips") on the impact of the estate tax on family-owned businesses and tax planning opportunities available to them.

The above material is provided for general informational purposes only and is not intended to constitute legal advice in any particular matter. Transmission of this material does not create an attorney-client relationship. Paley Law Corporation does not warrant the content of this material and is not responsible for any errors or omissions associated with it.

To ensure compliance with requirements imposed by the Internal Revenue Service, Paley Law Corporation informs you that any U.S. tax advice contained in this communication (including any links to other websites or material) is not intended to be used, and cannot be used, for purposes of (i) avoiding penalties imposed under the Internal Revenue Code, or (ii) promoting, marketing or recommending to another party any transaction or matter addressed herein.

    

3301 Barham Boulevard, Suite 402A, Los Angeles, California 90068 

323.654.9513 Tel 323.417.4730 Fax

 

2011 Paley Law Corporation