2011 and 2012 presents an extraordinary opportunity for wealthy
taxpayers to transfer wealth to future generations without paying gift
or estate tax. At least for 2011 and likely for 2012, $5 million can be
transferred free of tax. There are additional strategies which can
leverage the $5 million and allow taxpayers to transfer significantly
In making gifts, although no gift tax may apply if the gifts are
under $5 million (or $10 million for a married couple), there is still a
need to file a gift tax return. Gift tax returns are necessary if a
gift to any one person exceeds $13,000 per year. A gift tax return may
also be necessary if assets are transferred by a married couple and the
couple "gift splits," meaning the assets are owned by one spouse but the
other spouse agrees to use his or her gift exemption.
Recently, The Wall Street Journal
reported that the IRS is auditing state property tax records to
determine whether taxpayers are making gifts but not properly reporting
the gifts. According to the May 26, 2011, The Wall Street Journal,
the IRS audited 323 taxpayers over the last two years by reviewing
state property records and discovered that 97 had failed to report gifts
on the IRS Form 709. Of those 97 cases, twelve resulted in taxes or
penalties for making gifts exceeding the exemption amount. Among the
states complying with the IRS request for information are Virginia,
Florida, New York and twelve others.
The bottom line: take advantage of the law while the opportunity is
present to remove significant wealth from your estate but do not forget
filing the gift tax return.
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