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Making a gift of money could stave off inheritance tax

For Miami residents who have worked hard all of their lives to build a nest egg, the last thing they would want are for the beneficiaries of their wills to pay lose out to a large estate tax on their inheritance. That's why tax planning should be part of any estate plan.

As it stands, the federal government allows people to move $13,000 each year to a recipient as a tax-free gift. That money can be placed in a trust account with no taxes and also can stay safe from creditors, should the recipient owe debts.

There is no limit to how many people can receive a gift, and unlike a college savings plan, the recipient can spend the funds for any purpose. Those who give the funds should know that unless conditions are put on the gift, such as stipulating in a trust account that the recipient cannot have access until a certain age, the money could be spent without restrictions.

Each spouse in a couple can make a gift in his or her name, as well. So if a couple has three grown children, each married and each with three children of their own, the couple could make a gift to nine people annually. By giving to nine people at $13,000 each reduces an estate by $117,000. If each half of the couple gives the same amount, the combined estate could dwindle by double that, or $234,000, tax free.

Those with assets who want to transfer money tax free need to consult with an attorney or a qualified financial adviser. There are certain stipulations that a trustee will need to know about before making decisions. There also are legalities to consider about setting up a trust account and insuring it stays tax free.

Source: Investor's Business Daily, "How To Trim Your Taxable Estate By Gifting Assets," Donald Jay Korn, June 1, 2012

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