Do End Of Year Gifts To Children and Grandchildren Still Make Sense?
By: David M. Frees III
In the last few days of 2010 Congress passed, and the president signed, a
new bill governing federal estate and gift taxes.
Since we are so close to the end of a calendar year, many people are
calling and asking whether or not to make their traditional end of year
General Thoughts On Gifting and Gifting Before The End of 2010
In general, you should not make gifts that will negatively impair your
personal lifestyle. This is especially true when you are retired and on a
However, many clients find that they are fortunate enough to be building
estate value even though they are comfortable in their retirement. In these
cases, or even in cases of smaller estates, where you want to preserve assets
and protect them from the nursing home spending, gifts may be a valuable
end of year planning strategy.
This article deals predominantly with gifts where you have sufficient funds
to avoid medicaid and nursing home issue. If you desire to protect
your assets from nursing home costs, click here.
For those who want to continue making gifts to family members, there is
some very good news in the new estate tax law.
Here is a quick review of the new federal estate tax law and rates.
Strategies For End of Year Gifting and Gifts in 2011:
Since the federal estate tax rate will be the same for the next 2 years, and
since five million dollars will be covered and tax free at death (or even during
lifetime) for those same two years (before we fall back again to only $1 million
dollars) large gifts do not need to be made before the end of 2010 unless very
large gifts are being made to grandchildren.
Annual gift tax exclusion gifts (currently $13,000.00) per person can be made
before December 31st and again after January first (for 2011) without using
any of your lifetime or death exemption. Note that this amount might adjust
again in the future.
These annual gifts can be made to children and grandchildren and can be made
to the spouses of your children and grandchildren as well. If you are married,
both you and your spouse can make these gifts and effectively double the amount
that can be given without filing a gift tax return or paying any tax.
In addition, greater amounts can be paid directly to a school or for medical
purposes in certain circumstances as well.
In short, make gifts of up to the $13,000.00 per person annual gift tax
exclusion amount before the end of the year. In 2011 gifts in excess of this
amount will either be taxed (at the historically low rate of 35% for the next
Since the effectiveness of gifts can vary widely from person to person, and
because there are better and worse ways to make gifts depending on your
personal circumstances ask your lawyer and/or tax adviser to consider your
personal facts and circumstances when advising you on the use of gifts,
paying up insurance policies, or the use of trusts, annuities, and other gifting