Fratello & Fox, P.C.

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             Lifetime gifting has many advantages from an estate tax perspective.  A “gift” is a transfer of property for less than full value.  Gifted property can be in the form of real, tangible or intangible property (e.g. cash, a house, an automobile, patent rights, etc.).  The value of the gift is typically the fair market value of the gifted property on the date the gift is made.

             Lifetime gifts may lessen the imposition of estate taxes by strategically reducing the size of an individual’s estate before death.  Estates receive a $2 million federal estate tax credit (Unified Credit) if a decedent dies in calendar years 2006-2008.  Currently, New York State does not apply a state estate tax if the decedent’s estate is $1 million or less.  Thus, if someone dies in 2006-2008 and their estate is greater than $2 million, it will be taxed under both the federal and state tax systems. 

             When planning lifetime gifts, one must take into account federal gift tax.  There is no New York State gift tax for gifts made on or after January 1, 2000.  A U.S. citizen may make gifts up to $12,000.00 (in 2006) per year, per recipient without having to report the gift(s) to the IRS, therefore allowing the gift to pass under the “tax radar”.  Furthermore, one may gift, tax-free, during his lifetime, up to $1 million dollars (until 2010).  It must be noted that the federal estate tax credit may be reduced by the amount of the reportable gifts made during one’s lifetime. 

             Gifting may avoid probate or administration of the asset gifted because it may remove the asset from the estate before death.  Be aware that gifts made within 3 years of death may be included in an estate for estate tax purposes; advanced planning is crucial.  

             Be sure to contact your accountant or estate planning attorney before making any decisions about making lifetime gifts and to learn of additional ways of utilizing gifting as an estate planning tool.

 

Dated: 6/15/2006

Lifetime gifting

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