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'TISN'T THE SEASON TO GET TOO CUTE WITH GIFTS

December 23, 2005

Gifting looms large this time of year, and the tax world is no exception. Of course, it's easier for tax folk, for we tend to tell other people to give money away, but it's the thought that counts.

We tell people with enough money to worry about estate taxes to give generously each year to their family members. The Estate Tax doesn't look like it's going away, and gifting is a good way to to fend off the grim estate tax reaper. Taxpayers can give away $11,000 per year, per donee, without the gift counting against your lifetime estate and gift tax exemption. A couple with one married child and three grandchildren - five donees - can put $110,000 out of reach of the tax collector each year with annual gifts.

The flip side of the annual exclusion is that once the year is over, the opportunity is gone. The the couple with five donees that fails to use the annual exclusion has blown a $110,000 estate planning opportunity forever.

GETTING TOO CUTE

Making a gift should be easy, but creative taxpayers have found an amazing number of ways to screw it up:

- One taxpayer endoresed shares of stock to his son. He put them in a safe deposit box with a note that the stock belong to his son. The son never knew about it, so the gift didn't count.

- A farmer deeded properties to grandchildren as gifts and recorded the deeds, but never told the grandchildren and continued to run the farms as if he owned them. The gift didn't count.

- A taxpayer meant to forgive notes owed her by her kids, but never got around to it. The "gift" didn't count.

- A taxpayer wrote gift checks but died before they were cashed. The gifts didn't count.

If you want to make sure the gift counts in 2005, don't be too cute. If you give cash and you are close to the deadline, have the bank make an electronic transfer, or deliver a cashiers check. If you are giving away stock or mutual fund shares, get them to the donee account before year end. And make sure they know; if you never tell the donee that they have a gift, the tax law says they don't.

This is another installment in our series on 2005 year-end tax planning.

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