20 Oct 2012

Annual Exclusion Gift Amount Increases in 2013

The tax law allows all individuals to make gifts to other persons on an annual basis free of gift tax and without the requirement to file a gift tax return. These gifts are known as annual exclusion gifts. In 2012, the annual exclusion gift limit is $13,000 for each gift made to a person. This means that this year, an individual may give up to $13,000 to as many people as he or she desires without a gift tax bill.  For example, if the individual decides to make 100 annual exclusion gifts to his or her family and friends, with a collective value of $1,300,000, no gift taxes will be due and the individual will not have to file a gift tax return.

The IRS recently announced in Revenue Procedure 2012-41 that, based on an inflation adjustment, the annual exclusion gift limit will increase in $14,000 in 2013.  This is great news for estate planning purposes as it creates opportunities to transfer more assets to family members free of gift tax. It is important to note, however, that to the extent the value of a gift exceeds the annual exclusion amount, the overage is subject to a possible gift tax (a 35% tax rate in 2012 increasing to a 55% tax rate in 2013) and a gift tax return must be filed to report the gift. No gift tax will be due to the extent that the donor’s remaining gift tax exemption equals or exceeds the value of the gift that is in excess of the annual exclusion amount. (The gift tax exemption is $5,120,000 in 2012 and is scheduled to be reduced to $1,000,000 in 2013. An individual’s gift tax exemption is reduced by the value of taxable gifts he or she made in prior tax years.)

If you have not made your annual exclusion gifts to family members yet, the holiday season is approaching and provides the perfect opportunity to make those gifts before year end!

If you would like to discuss this or other trusts and estates issues, please contact the attorneys at Drucker Law Offices, 468 North Camden Drive, 2nd Floor, Beverly Hills, CA 90210, 310.285.5375 Tel, 310.444.9754 Fax, www.druckerlaw.com

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