Engel, Powell & Spivey, PC Certified Public Accountants

The Gift that Helps the Giver

There are some compelling reasons to consider gifting-and to return to the topic each and every year-if you have the financial resources to comfortably afford it. Gifting is the tax free transfer of assets up to $12,000 per recipient (the current annual limit). Most often such transfers are made to family members and they must be received before midnight on December 31 in order to gain the advantages that gifting offers.
It is entirely appropriate to look at both the pros and cons of this underutilized transfer. As part of your overall tax planning for the year, you should discuss it with your financial planner at mid-year. Summer is often the best time to meet with a financial planner - by then your previous year's taxes are completed and available as a guide to the current year's planning. In addition, a summer planning session allows adequate time to consider completely and enact a program of tax savings maneuvers. Furthermore, summer is good because financial planners often have more time as the calendar swings farther away from April 15.
Below is a brief overview listing the advantages and disadvantages of gifting. Everyone's situation is unique, however, and such a large transfer should certainly be evaluated as part of your overall financial plan.

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Lifetime Gift vs an Estate Transfer

	Advantages	Disadvantages
Tax Aspects	Gift is tax exclusive Removal of potential future appreciation from future transfer tax Taxable income may be moved to a lower bracket No transfer tax due out of pocket until the applicable credit amount is exceeded	Over limit - tax is due Loss of possibility that property values may decline resulting in a lower tax and/or possibility that future tax law changes may be more beneficial Loss of step-up in income tax basis for beneficiary Does not provide for changed circumstances of either party

Non-Tax Aspects	Greater privacy than with a testamentary transfer Potential reduction of probate and administrative costs Pleasure of seeing recipient enjoy gift Opportunity to preview recipient's wealth management skills Possibility of providing for recipient's education, support, financial well-being Adds incentive to donee to run a family business	Loss of the use and/or income from the property Psychological loss from giving up control of the asset Irrevocable

As indicated above, there are a number of ways to take advantage of this "inter vivos estate planning" technique, as well as some deliberations to work through. What form should the transfer take? It need not be cash, but could be other assets (real estate, stocks, etc.). The motivations and consequences behind such transfers should be keenly considered, too. What will the impact be on you, the donor, as well as on the recipient? While for the most part such gifts are more than welcome, there may be times when they are not as good an idea. A step that has the potential for a large impact on both sides of the gift almost requires the advice and consultation of your financial planner, who is more fully aware of the ramifications to your particular situation than anyone else and who is committed to serving your best interests.