Trusts and Other Gifting Opportunities Offer Loopholes to Estate Tax Laws

Dec 10, 2012

New Year’s Eve draws ever closer and with it comes talk of resolutions, festivities, fun…and, for some, the unwelcome possibility of losing money.


If you’re not a member of the elusive 1%, you might assume that estate and gift tax issues aren’t your concern. And right now, estates under $5.12 million are unaffected by federal gift or estate tax. However, in a month, all this may change, and even those with estates greater than $1 million may face a frightening prospect: new taxes. Why?


In December 2010, TRA 2010 was passed, or laws that extended Bush’s tax cuts until midnight on December 31st, 2010. But the current economic state—the budget deficit, upcoming budget cuts, etc.—are providing motivation for Congress to find creative ways to boost revenue. In order to increase taxes, Congress may let TRA 2010 expire, leaving individuals who had never before considered the possibility of paying hefty estate taxes vulnerable. In other words, 2013 may be accompanied by some potentially disturbing changes.


But before you panic, there are several ways to avoid these taxes.

Gift part of your estate. Between now and December, you have the option of giving away up to $5.12 million without worrying about gift tax. Married couples can gift twice as much. But what if you’d rather hold on to this money? With expenses rising, giving up your money just to skirt tax law probably seems like cutting off your nose to spite your face.


For those seeking a way to keep their assets, a trust may be the answer. By placing your money in a trust and naming your spouse or partner as trustee, you can escape being penalized by federal tax laws. Although these assets are no longer part of your estate (and therefore safe from taxation), your partner is still free to use them. You may also name your children or others as a trustee instead. Many kinds of trusts exist, depending on your needs and requirements: life insurance trusts, qualified personal residence trusts, grantor retained annuity trusts, and more. Ultimately, this solution gives you the best of both worlds: the ability to retain your money without paying taxes on it.


The good news is that these loopholes do allow you to evade these seemingly harsh estate laws. But because TRA 2010 is set to expire by the New Year, time is not on your side. It’s paramount that you discuss your options with an estate attorney sooner rather than later. This year, resolve to protect your estate.

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Happy holidays… end of year tips!

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