Thinking of Gifting Money to Relatives? Late 2011 and Early 2012 May Be Best Timing

Inez Bowie | December 28th, 2011

If you’ve been considering making a monetary gift to your children or other relatives, you may want to make your gift well before December 31. And better yet, if you haven’t made any previous gifts in 2011, you can gift up to $13,000 in 2011 and follow up with a gift of up to $13,000 in early 2012.

By making your two gifts in late 2011 and early 2012, your recipient can benefit by investing both amounts in early 2012 and earn income on the principal the entire year – while you benefit by using an effective way to transfer wealth and exclude that amount from estate tax. An additional reason to make your gift in early 2012 is the uncertainty of future tax laws, given our current political environment.

Under the current tax law, gifts of up to $13,000 per person do not need to be reported to the IRS. You’ll also want to consider the 2011 lifetime gift exemption limit of $5 million in your overall tax planning for the year, as well as the Generation Skipping Transfer limit, which is also $5 million. There could be tax implications for Generation Skipping Transfer if you used this exemption in prior years. And, if you provided Generation Skipping Transfer gifts that were below the exemption limit in 2011, those gifts may still be subject to gift tax.

Be sure to talk to your tax advisor to determine which gifting strategy is best for your situation.

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