With only two full weeks remaining until the New Year, time is of the essence to execute crucial tax-saving donations. “The year end is a good time to review your charitable giving to ensure that it is being done in the most tax-efficient manner,”offers Attorney Carl R. Williams of Tom Bolt and Associates, P.C. Charitable giving is a form of estate planning, because a gift to charity will never be subject to estate or gift tax. If you are planning to make a large gift before January 1, 2008, it is important to review the impact on your 2007 income tax liability and whether it may make sense to defer all or a portion of the gift until 2008. If the gift is of real property and will require an appraisal, it is critical to start the process as soon as possible so that the appraisal is available before year end.
“In addition to charitable giving, my clients also express an interest in making inter-family donations,” says Attorney Williams. Every person may give up to $12,000 free of gift tax to as many individuals as they wish. Because annual exclusions do not carry over into subsequent years, you will lose your annual exclusions for 2007 gifts if you do not make them before Dec. 31, 2007. An annual exclusion gift may consist of almost any asset, including stocks, bonds, real estate, cash, and partnership interests. Subject to special rules, annual exclusion gifts may also be made in trust.
“Despite the tax savings, many clients are uneasy about making outright gifts to their children or grandchildren,” continues Williams. “This is due to the sense of loss of control over how and when the kids may use the gift. This concern can be alleviated, however, by making gifts in trust, which then allows clients to determine when younger beneficiaries receive the money and how it is to be used.”
“While many clients are in an immediate position to provide substantial fiscal assets to their children and grandchildren, they are far more comfortable knowing that the gifts will be used for the children’s education, health, and maintenance, at least until a time when the kids have matured and are better situated to receive such gifts,” concludes Williams.