The dust has settled, and the tax season rush is over for another year. But the need to plan is never over, and perhaps while the memory of how much tax you really paid is still fresh and somewhat painful, some planning effort to minimize the 2011 tax damage is in order.  Congress included a major planning opportunity with the last-minute passage of the NO CHANGES legislation last December—in the area of Gift Planning—an integral tool available to benefit lots of older Americans.  Here’s the pointer to consider: the lifetime gifting limit has been raised significantly—up to the estate exclusion limit of $5 million per person.  How does that help?

If an elderly taxpayer has surplus assets and a source of retirement income, why not give away the surplus assets now, to avoid some or all the estate tax that may result later??  Many older folks are single and, if well provided-for by parents or a deceased spouse, some income tax savings can result by transferring wealth to younger beneficiaries who benefit from the lower tax paid by married couples.  And certainly future appreciation of real estate or portfolio assets can avoid exposure to future estate tax by gifting to ultimate intended beneficiaries now instead of as part of the estate transfer.

For the past several years the lifetime gifting limit has been pegged at $1 million, while the estate tax exclusion drifted up, then went away altogether in 2010, and is now set at $5million for 2011 and 2012.  But at least for these two years, the ‘unified estate and gift tax’ is once again united at the same level, and an aggressive gifting program can move lots of wealth to a younger generation totally tax free!  Some families may realize that substantial amounts can be moved tax free, and they are not limited to the annual $13,000 exclusion amount with which most people are accustomed to dealing.  Larger gifts that exceed the annual ‘de minimus’  $13,000 limit will require filing annual forms 709, but if less than $5 million is involved, no tax will have to be paid.

Our ‘voluntary’ tax system basically assesses a tax on transfers of money or value from one person to another.  Most of the transfers are of an ‘income’ nature, and the related tax is paid by the recipient. However, gifting is a different kind of transfer, and requires any tax to be paid by the donor/grantor.  So the door is wide open for the many citizens whose estates are $10 million or less, to avoid estate tax altogether by acting during 2011 and 2012.  Many have established trusts somewhere along the line, and these should be updated for the law change.  It may now even be possible to eliminate the trust and just transfer those pesky assets away to the kids or grandchildren, while you are here to enjoy seeing the benefits of your generosity.  And if you do decide to take full advantage, be sure to thank your elected representative for leaving the barn door open for a little while anyway.