Year-End Gift Tax Planning

Dear Clients, Colleagues, and Friends

End of year gifting by check is always an issue for those trying to use their annual exclusion amounts, but in 2012 the issue also relates to those attempting to make larger gifts to use their available $5.12M unified credit amount before the scheduled reduction of the unified credit in 2013. The last thing a donor wants to see happen is that a large gift by check that he or she thinks is covered by the unified credit in 2012 is taxed as a 2013 gift and is subject to a substantial gift tax.

The issue with using checks to make gifts is that until the check clears the bank, the donor can revoke the gift by issuing a stop payment or by removing adequate funds from the bank account. A gift that can be revoked is not complete until revocability ends. Thus, a check written in 2012 that does not clear until 2013 is at risk of being a 2013 gift, not a 2012 gift, since the donor could have stopped payment in 2013 before it cleared.

The IRS issued Revenue Ruling 96-56, 1996-2 C.B. 161, which provides a safe harbor mechanism to assure 2012 gift tax treatment. Under that ruling, a gift by check delivered in 2012 will be a gift as of the date the check is deposited or presented for payment if:

  1. the check was paid by the drawee bank when first presented to the drawee bank for payment;
  2. the donor was alive when the check was paid by the drawee bank;
  3. the donor intended to make a gift;
  4. delivery of the check by the donor was unconditional; and
  5. the check was deposited, cashed, or presented in 2012 and within a reasonable time of issuance.

Thus, to assure a 2012 gift, the donor needs to (a) deliver the check to the donee in 2012 (with adequate funds in the bank for it to clear), (b) assure the donee deposits it in 2012 and within a reasonable time of issuance, and (c) not die until after the check clears.

HYCET (Have Your Cake and Eat it Too) Trust®: While very late in the year, there still may be time to make gifts of up to the $5.12M gift tax exclusion, but perhaps you aren’t sure if you may need or want the gift back. The proper structure of the HYCET Trust will give you the flexibility not offered in the traditional third-party irrevocable gift trust structure.

Remember, tax planning is never about making your kids and grandkids richer — It’s about preserving your estate and leaving your investment advisors 100% more corpus on which to generate the investment returns your descendants might need because our generation has committed generational theft in leaving such a large national debt for them to pay off. Certainly, these dire financial conditions will result in your children and grandchildren having much more of a challenge creating a similar lifestyle as this generation enjoys.

To that end, if you have not made gifts using all or part of your unused gift tax exclusion because you may need or want the gifted assets back, but want to capture the exclusion before the law expires at midnight on December 31, 2012, there may still be time to do so. Our office will be open on Monday and reopening on Wednesday and available through the end of the year.

When you combine the “discounts” available when using LLCs and LPs to make the gift, you can leverage the amount of the gift much greater than $5.12M per person. Shifting $5M to $10M gift tax-free from your estate now will in 20 years save your descendants 55% of the value it eventually grows to at the time of your death. This is the most significant wealth transfer planning opportunity as has ever been allowed by the IRS — Don’t let it go to waste…

All of us at Jeffrey M. Verdon Law Group, LLP wish you a safe and glorious holiday and a healthy and prosperous New Year.

Jeffrey M. Verdon, Esq.

Jeffrey M. Verdon Law Group, LLP

Year-End Gift Planning for Procrastinators – The Gift-by-Promise Plan Works as Advertised

Dear Clients, Colleagues, and Friends,

Following the release of Monday’s Client Alert on “How to Give Away $5.12M in 26 Days” we were contacted by several of our readers who procrastinated and now find themselves wanting to do their year-end gift tax planning prior to December 31. I guess these folks have been in a coma for the past 23 months and just now awakening to find the gift tax laws are a changing… Not to worry — there is still time and we can help you! — thanks, in large part to our friend and tax lawyer extraordinaire: Austin Bramwell.

Even for the procrastinators among us, using the Gift-by-Promise Plan (Plan) should be considered. The strategy is simple: Instead of transferring cash or other property this year, an individual can promise to make gifts to the donee(s) in the future. If the promise is designed so that it is legally enforceable under local law but is not in exchange for consideration in money or money’s worth, it will be treated for federal gift tax purposes as a taxable gift when the promise is made (rather than when it is later paid) taking advantage of the $5.12M gift and estate tax exemption amount while it is still available.

In the Barron’s article we referenced in Monday’s Client Alert, the author reported Pennsylvania being the only state in which the Gift-byPromise Plan would work. According to Mr. Bramwell, the Plan will work no matter in which state the Donor resides, so long as the Donee(s) provide consideration to the Donor that will be legally sufficient to make the promise enforceable.

This week, Austin Bramwell released his long awaited article: “The Gift-by-Promise Plan Works as Advertised” wherein he carefully and thoughtfully debunks previous arguments against this Plan, and cogently takes the reader through the technical reasons why the Gift-by-Promise Plan is sound planning and should succeed if challenged by the IRS.

So, there is time for the procrastinators who haven’t yet gotten around to doing their gift tax planning. Below is the link to Mr. Bramwell’s excellent article for those insomniacs who enjoy reading technical tax materials: Gift by Promise Works as Advertised

No more excuses. If you still haven’t performed your end of year gift tax planning, the Gift-by-Promise Plan may be the ideal approach for you.

Jeffrey M. Verdon, Esq.


How To Give Away $5 Million In 26 Days

We thought this article from Barron’s presented some interesting options for capturing the gift tax exclusion in the short time remaining: Giving $5 Million in 26 Days

“Giving $5 Million in 26 Days” indicates it’s showtime — the last moves to make as the golden age of gift-tax exemptions comes to an end.

This article highlights how to give away $5 Million with these last-minute ideas for creating trusts: cash for kiddies, a bauble for your better half, goodies for the grandkids, and our HYCET Trust® — have your cake and eat it too!

We hope you find it of interest.

Jeffrey M. Verdon, Esq.

Jeffrey M. Verdon Law Group, LLP