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DON'T STOP GIVING YET

December 26, 2006

Just because it's December 26 doesn't mean you should stop giving - at least not if estate planning matters to you.

The tax law allows you to give $12,000 tax-free to any individual donee each year. Gifts that qualify for this "annual exclusion" are not subject to gift tax and don't eat into your lifetime estate and gift tax exclusion.

With the lifetime estate tax exclusion up to $2 million, the $12,000 annual gift exclusion may seem less important. Unfortunately, current law is set to expire. If you have the good fortune to survive 2010, the exclusion will fall back to $1 million, and the tax rate goes back up to 55%. Unless they want to count on Congress acting sensibly, taxpayers who might face estate taxes under the post-2010 rules should tax advantage of the annual exclusion.

A married couple with two children can make transfer $48,000 to them tax-free each year under the annual exclusion. In addition to getting the $48,000 out of their taxable estates, they also move all future earnings on that $48,000 to the next generation. Assuming a modest 4% annual return, annual gifts of $48,000 add up to over $576,000 10 years.

And remember: once 2006 is over, the 2006 annual gift tax exclusion is gone forever.

 • 2006 year-end tax planning       Bookmark: del.icio.us • Digg • reddit