Saturday, November 16, 2013
A GUIDE TO GIFTING IN ESTATE PLANNING
Gifting has become very popular in the past 3 years as an estate planning tool. The panic leading up to the “fiscal cliff” caused by the uncertainty over Federal tax policy, in combination with generous gift rules in 2011 & 2012, resulted in a lot gifting especially between parents and children during those years.. And it just wasn’t the rich who were gifting, many middle-class families availed themselves of the gift mechanism to re-distribute wealth to their families, and avoid having to pay estate taxes in the future.
And that the gifting rules have been extended to 2013 and beyond, and indexed for inflation, gifting has continued to be a popular and effective estate plan tool.
Many people know about the annual gift exclusion (currently $14,000), but there is a separate life-time gift exclusion which is currently $5.25 Million. Using the life-time gift exclusion is complex, and it should involve the legal assistance of an estate planning lawyer, and the tax expertise of a certified public accountant.
There are legal elements that must be met for the transfer to be a “gift”. There are (1) capacity of the donor (the giver); (2) donative intent; (3) actual transfer of the gift; and (4) receipt and acceptance by the donee. If any of these elements fail, the gift is not a gift.
In 2002, I advised a client and prepared the documents for him for a gift of stock (a controlling interest) in a family company to the client’s son. My client died in 2012, and my client’s brother sued his nephew under the legal theory that the gift was either incomplete, or it was not in compliance with a shareholder’s agreement from 1972, or that the shareholder’s agreement rendered the gift void.
I testified at trial on November 12, 2013 in LA Superior Court as to the events that took place in 2002, and my role as the client’s attorney in his gift of stock to his son. I established in my testimony the elements of the gift, which were set forth in the documents I had prepared 13 years ago, and signed by my client in my presence. The following day, the judge, as a matter of law, held the gift valid and not rendered void by the 1972 shareholder’s agreement.
When gifting real estate or company ownership, an appraisal or business valuation must be undertaken by a qualified appraiser or business valuation expert. The value of the asset is key to the tax reporting that the CPA must prepare for the transaction.
Labels: Dwight Edward Tompkins, estate planning attorney orange county ca, estate plans, Estate Taxes, Family Business, Gift Tax, Real Estate, taxes
I help people protect their families through affordable, personalized estate planning. Tompkins-Law.com I am in solo practice in Orange County, California where I focus on estate planning, family trusts, living trusts, wills, corporations and business succession planning. I speak Spanish and serve the latino community. Fideicomisos-Testamentos.com