http://www.denhalaw.com/?p=850
For over a decade, the future of the federal estate tax has been uncertain. Both Republicans and Democrats have sharply different strategies, with some calling for an increase in federal gift and estate taxes and others advocating for total elimination. Even if you have never done estate planning, this year is a good time to start. Remember that in 2001, Congress increased the estate tax exemption in measured steps until December 31, 2009. Everyone assumed there would be comprehensive reform, but Congress failed to act.
However, one thing is sure, for the remainder of 2012, each individual can transfer up to $5,120,000 million free of gift tax or leave up to that amount tax-free to anyone he chooses at death. Assuming an individual plans to live through the remainder of the year, the lifetime giving option is the most viable. At the very least, individuals should consider making gifts of their annual exclusion amount ($13,000 per donee in 2012 and increasing to $14,000 as of January 1, 2013) or gifts on an unlimited basis for tuition and/or medical expense payments. Such gifts can be made over and above the gifts that will take advantage of the gift tax exemption.
Despite having a multitude of gift giving strategies to choose from, many clients are still reluctant to make transfers for various reasons. Whether due to possibly needing the money again or distrusting the beneficiary or the environment the beneficiary operates under, an individual sitting on the sidelines failing to take advantage of this once-in-a-lifetime opportunity will miss the train if this gift is not made before year end. A technique that should alleviate the concern of this type of individual that hasn’t received much press (but should) is the Disclaimer Gift Trust.
What is a disclaimer? A disclaimer is a refusal by a beneficiary of a gift or bequest. What makes a disclaimer possible is that a disclaimer, if properly accomplished, is not a “transfer.” Under the Internal Revenue Code, without a “transfer” there cannot be a gift. Put another way, gift taxes are only imposed on “the transfer of property by gift.”
Say you feel pressured to capitalize on the current $5,120,000 million gift-tax exemption, but, for many reasons, you wouldn’t otherwise make a gift this year. One way to allow yourself the ability of making the gift and still having time to decide what to exactly do is by utilizing the Disclaimer Gift Trust concept.
For example, before the end of calendar year 2012, you can make a $5,120,000 gift to your spouse. Should Congress decide to extend the $5,120,000 exemption, your spouse can continue to retain the money in trust on a tax free basis or pass some or all of it vis-à-vis a “disclaimer” and pass it to the beneficiaries. The money is still in the individual’s family unit and no harm done.
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