'Tis The Season: Gifts As A Tax Strategy

Are you planning to make year-end gifts?

Every person can give any other person up to $13,000 for 2011 without incurring any gift tax. The annual exclusion amount increases to $26,000 per donee, or recipient, if your spouse consents to gift splitting.

Annual exclusion gifts remove the amount of the gift and future appreciation in the value of the gift from your estate. These gifts shift the income tax obligation on the property's earnings to the donee, who may be in a lower tax bracket.

A gift by check to a noncharitable donee is considered a completed gift for gift and estate tax purposes on the earlier of:

1. The date on which the donor no longer has sufficient control under local law to have the power to change the check's disposition, or

2. The date when the donee deposits the check (or cashes it against the donee's available funds) or presents the check for payment, if it is established that:

  • The check was paid by the drawee bank when first presented to that bank for payment; The donor was alive when the check was paid by the drawee bank;
  • The donor intended to make a gift;
  • Delivery of the check by the donor was unconditional; and
  • The check was deposited, cashed or presented in the calendar year for which completed gift treatment is sought and within a reasonable time of issuance.

For example, a $13,000 gift check given to and deposited by your grandson on Dec. 31, 2011, is treated as a completed gift for 2011 even though the check does not clear until 2012 – assuming the donor is still alive when the check is paid by the drawee bank.

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