Gifting Strategies:

November 2009

Paying taxes usually ranks at the bottom of most people’s list of favorite things to do. That’s why tax-savings strategies are always in hot demand. Considering how expensive estate taxes can be, many consumers now realize that having a large taxable estate can be too much of a good thing. When it comes to reducing estate taxes, consumers have an even greater motive to slash their tax bills. One strategy that allows consumers to reduce their taxable estate — with the added bonus of letting them see loved ones enjoying their legacy — is a process called gifting, or simply, giving away part or all of your estate while you live. But as with anything having to do with taxes, great care is required to make gifting a successful tax-savings strategy.

As you might expect, the government, eager to preserve tax revenues, will allow consumers to part company with their taxable estate only within limits. For instance, each year a tax- payer — the donor — can give an individual or an organization– the donee — up to $13,000 gift-tax free. Together, a married couple can give a combined $26,000. So, if you start early, over time you could give a formidable amount of your estate away to your family, friends and community.

For the successful investor who has a soft spot for a charitable organization, one of the most appealing is the Charitable Remainder Trust (CRT). It allows the investor to enjoy the rewards of savvy investing, reap substantial tax benefits, and contribute to a favorite charity, all with the blessing of Uncle Sam. So, in return for donating a troublesome asset to a worthy cause, you can eliminate capital gains taxes, achieve an immediate charitable tax deduction, reduce your taxable estate, and secure a new source of income for yourself, your spouse, and even your children. No wonder the CRT is becoming a favorite estate-planning tool for many Americans.

Another option to consider is an Irrevocable Life Insurance Trust—ILIT for short—this allows you to use life insurance to provide a legacy to loved ones or worthy organizations without adding to your estate tax bill. Here’s how it works. The ILIT actually owns the insurance policy on your life. You name your loved ones—or a favorite charitable organization—the beneficiary of the policy’s proceeds. This is a great option because the ILIT provides you with considerable control over when, how and to whom the life insurance proceeds will eventually be distributed.

We at the O’Brien Law Firm LLC have given you a quick overview of a few basic strategies to “gifting and estate planning” that can help you control when, how and to whom your legacy passes, while cutting estate taxes as much as possible. Keep us in mind, as each one of these strategies requires careful handling to implement successfully. That’s why a qualified estate-planning attorney such as Michael O’Brien is the best place to start whenever you want to ensure that your loved ones will benefit from your life’s work.