Tax Planning for Those Year-Ending Family Gifts

Article excerpt

For many individuals, a key part of their investment and estate planning is to write year-end checks for gifts to family members. Here are some reminders to help put your tax planning in perspective for 1996 and beyond.

Unlike charitable contributions, you get no income-tax deductions for gifts to individuals. Nevertheless, these gifts can be advantageous because they shift investment income from yourself to family members in lower brackets, as well as reduce the value of your assets subject to estate taxes at your death.

As part of your planning, you need to consider gift taxes when you make sizable lifetime transfers of money or other assets. Fortunately, gift taxes present no problems for most people. Usually, it is possible to get around these taxes, courtesy of annual exclusions of $10,000 ($20,000 when you are married and your spouse joins in, even if all of the gift comes from your assets) for gifts in any single year to any one person. These annual exclusions permit you to pass along as much as $10,000 (or $20,000) a year to each of as many of your relatives or friends as you like, without payment of gift taxes or using up part of your exemption of $600,000 from gift and estate taxes. Use it or lose it: You are able to take advantage of the exclusions each year, even if you write checks or transfer other assets to the same recipients, only if you make those gifts by Dec. 31. Miss that deadline and you lose out on your exclusions for that year. For instance, you are not allowed to carry forward any unused portion of exclusions for 1996 to 1997 or any subsequent year. Caution: If you intend to give by check close to the end of 1996, remind the object of your generosity to deposit your check in sufficient time for it to clear your bank by Dec. …