Low Gift Tax Rate Adds Urgency to Year-End Planning
You’re back from vacay, tanned and rested. You’ve weathered the worst of the financial crisis. The year-end holds business, investing and tax planning opportunities. There’s one major tax planning opportunity that’s almost sure to lapse on December 31st. This year the gift tax rate is the lowest in decades.
- Gift tax rate reduction yields significant tax savings
- Tax holiday for generation-skipping gifts brings added benefit
- Estate and tax attorneys, accountants prepare for deluge of last-minute gifts
Substantial Tax Savings in Offing for Donors
You might never get another chance this good. This year, and probably this year only, the gift tax rate is "only" 35 percent. That’s more than the zero percent estate tax rate, but most people aren’t dying to take advantage of that. So that leaves gifting. And that doesn’t leave much time. The gradual reduction in estate and gift taxes enacted in the first Year of George W. Bush’s presidency sunsets on December 31st. Next year, taxes revert to a top rate of 55 percent.
There’s an added bonus. For this year there’s also no tax for generation-skipping gifts to grandkids and others. Next year those transfers will be subject to tax at 55 percent too. What this all adds up to is a possibly once in a lifetime opportunity to make some savvy and efficient estate planning transfers.
For people who’ve been hard-working and lucky enough to amass substantial wealth, planning for estate taxes poses a dilemma. It’s often difficult to give up control of assets to others, for any number of reasons. On the other hand controlling all your wealth until death can leave you open to a nasty tax bite even with a solid estate plan. And that’s why counselors to the wealthy will be working overtime this fall to get some clients off the fence.
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