Although the holidays are long forgotten, you may still want to consider giving gifts this year. A well-planned program of gifts to loved ones can preserve more of your wealth for your family by reducing the size of your taxable estate.

Any estate that’s worth over $1 million in 2002 could owe federal estate taxes. While that $1 million amount is scheduled to rise to $3.5 million by 2009, and the federal estate tax itself is scheduled to be repealed in 2010, estate taxes can still be a significant threat to larger estates for years to come.

Give Now, Save Later

Giving away assets during your lifetime is one way to fight back. Each year, a special provision in the tax law called the gift-tax annual exclusion allows you to give away a certain amount of assets, free from gift taxes, to your children or other heirs. The tax-free limit is currently $10,000 per recipient. Employing a strategy of lifetime giving may enable you to drastically reduce the size of your taxable estate.

For example, suppose you give $11,000 to each of your two children and three grandchildren. Over a five-year period, you can transfer $250,000 tax free. In addition, a lifetime exemption of $1 million applies to otherwise taxable gifts you make.

Benefits of Splitting

Gift splitting offers an opportunity for married couples to simplify their lifetime gift-giving strategy. When the appropriate tax election is made, a gift can be treated as split between spouses, even if the gift is actually given by only one spouse. For tax purposes, each spouse is viewed as having made one-half the gift. Let’s say, for example, that Frank gives his daughter Terri $20,000 for a down payment on a condo. Without the gift-splitting election, Frank’s exclusion shelters just $10,000, and the rest is a taxable gift. With the election, Frank’s wife Sue is treated as if she gave Terri half the amount, or $10,000. Assuming the couple makes no other gifts to Terri during the year, the entire $20,000 gift is tax free.

We Can Help

If you are interested in a gift-giving program, advice from your tax professional is recommended. And to learn about the benefits of using trusts in a lifetime giving strategy, please call CNB soon. For further information, please call, Kevin Kinney, AVP, Business Development Officer, (585)419-0622 or email [email protected]