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Don’t forget the Tried-And-True Gifting Strategies in 2012

Posted on Thu Sep 20, 2012, on Estate Planning

Rightfully so, much emphasis is being put on utilizing Gift Giving strategies that are scheduled to disappear on January 1, 2013. But when considering these strategies, don’t forget gift strategies that have worked in the past and continue to be cornerstones of most estate plans.

Take Advantage of The Annual Gift Exemption: When congress created the Gift Tax to plug loopholes that existed in the Federal Estate Tax, they created several categories of gifts that were considered “good gifts”, not subject to the gift tax. One of these exemptions is an annual gift to any number of persons. That rate is now adjusted for inflation, and for 2013 is a maximum of $13,000. Couples can lend each other the exemption so together can give $26,000 to any number of individuals. These gifts are then excluded from the estate and pass Gift and Estate Tax free to the recipient.¹

Gifts Paying Medical Expenses and Education Expenses: Also seen as “good gifts”, were payments of medical² and education expenses³ directly to the billing institution. There is no limit to these gifts.

Charitable Lead Annuity Trusts (CLATs): The low interest rates in 2013 provide an opportunity to the gift giver who can out invest predicted interest rates. In a CLAT the grantor gives assets to a trust whose terms require the trustee to pay an annuity to charity for set number of years. The annuity is based on projected interest rates, which are low in 2013. Appreciation of the assets in excess of the assumed rates can be passed to descendants free of Gift Tax.

Interfamily Loans: Low interest rates can also be taken advantage of by making loans to children who in turn invest the funds at a rate that exceeds the interest rates paid back to mother and father. There are required, minimum interest rates that must be charged for interfamily loans, otherwise an imputed gift is created. These rates are very low in 2013, providing an opportunity to the parent and child team that believe they can out invest these low rates.

Grantor Retained Annuity Trusts (GRATs). Continueing the theme of beating the IRS projected interest rates, the gift giver can create a trust (he is the “Grantor”) into which he transfers assets while retaining for himself an annuity based on the IRS assumed rates of return. If the assets are invested in a way that exceeds this assumed rate, when the annuity is completed any remaining appreciation in the trust passes to descendants free of Gift Tax.

Techniques Not Just For the Federal Gift Tax: When calculating the potential benefits these techniques present, also take into consideration that resulting gifts also avoid state Inheritance Taxes.4

Don’t let the Tax Tail wag your dog. Reducing or avoiding taxes is a noble goal, but these savings should not come at the expense of your financial wellbeing. Working closely with an experienced estate planning attorney will allow you to review many techniques that allow you to lock in the potential tax savings described above, but still retaining security for yourself.

Throughout our website,, you will find more information about Estate Planning and Estate Planning tools. Our firm focuses exclusively in the area of estate planning, probate, and the litigation surrounding estate planning and probate including Will Contests and Will Challenges. If you have estate planning questions, please call one of our Experienced Estate Planning Lawyers for a free consultation. Estate Planning is all our Will drafting lawyers do!5

¹ For example, a resident of Washington Township, Gloucester County, New Jersey with 2 children and 7 grandchildren could give to each of these descendants, or to a trust for the descendants, $13,000 each. This would remove $117,000 from his taxable estate each year. This amount is doubled if the gift giver’s spouse also makes a gift or authorizes the spouse to make a gift on his or her behalf.

² For example, if a resident of Drexel Hill, Delaware County, Pennsylvania paid $60,000.00 to the hospital directly for the medical care of her granddaughter’s stay at Children’s Hospital, this gift is free of the Federal Gift Tax and is removed from her Federal Taxable Estate as well as her Pennsylvania Taxable Estate.

³ For example, if a resident of Yardley, Bucks County, Pennsylvania paid $40,000.00 to the treasurer of her granddaughter’s preschool and $30,000 directly to the billing department for the University of Pennsylvania towards the tuition for a family friend, this gift is free of the Federal Gift Tax and is removed from her Federal Taxable Estate as well as her Pennsylvania Taxable Estate.

4 The Pennsylvania Inheritance Tax rates are 4.5% for descendants, 12% for siblings and 15% for more distant relatives or unrelated persons.

5 The Law Offices of Peter Klenk has Will drafting attorneys licensed in New York, Pennsylvania, New Jersey, Florida and Minnesota.


Charitable Lead Annuity Trusts, Estate Planning, Exemption, Gift Tax, Gifting Strategies, Grantor Retained Annuity Trusts, Interfamily Loans

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