Greater exemptions given for gifts

According to Stuart A. Rosenblatt, a senior tax partner of the accounting firm of Wiss & Co., increases in the unified credit for tax exempt gifts and estates (from $675,000 to $1 million) will mean larger gifts can be made without incurring a gift tax.

The changes result from the Economic Growth and Tax Relief Reconciliation Act of 2001. The gift tax annual exemption will increase since the first time since it was indexed for inflation in 1997. The exemption will increase $1,000 to $11,000 in 2002.

Individuals that have made taxable gifts in excess of $675,000 will owe some gift tax on a gift of $325,000. For example, if taxable gifts of $3 million have already been made, the additional amount that can be gifted now free of gift tax is approximately $250,000.

Wiss & Co. recommends that its clients make annual gifts to children and grandchildren and make the gifts for 2002 as early in the year as possible as oftentimes the intention is to gift designated assets, but a sudden death may occur and the intention is left unexecuted. The completion of the gift ensures the gifted assets are removed from the estate as planned.

Assets eligible for a valuation discount should be considered as the primary assets to be used for a gifting program, making gifts of discounted property leverages the effect of the gift. The effect of the discount is to make a gift of a certain value that only counts for gift tax purposes as the lower discounted value; i.e., assuming a discount of 20 percent, a gift of $25,000 would be taxed as a gift of $20,000.

Wiss & Co. has offices in Red Bank, Livingston, and New York City.