Make the Gift And Keep It Too!

By Drew Grey, CPA, Partner
dgrey@srgcpas.com

We know that the per person gift tax exclusion, which is $5,120,000 in 2012, is scheduled to decrease to $1,000,000 on January 1, 2013.  We also know that the gift and estate tax rate, currently 35%, is scheduled to increase to 55% on January 1, 2013.  As a result, parents and grandparents are interested in making gifts to take advantage of the increased exclusion between now and the end of the year, before the law changes.

However, what can they do if they do not have assets that they can, with confidence, give away?  What if Mom and Dad want to make a gift, to an irrevocable gift for the benefit of their children, but they are uncomfortable that they might need those assets in the future if they have a financial reverse?

The IRS gave us an answer in Private Letter Ruling 200944002.  That ruling gave rise to the Completed Gift Asset Protection Trust.  The essential idea is that Mom and Dad can establish an irrevocable trust under Nevada law; the beneficiaries can be Mom and Dad and their children; they transfer significant assets to it; and the transfer is a completed gift, thus using up all or a portion of their remaining gift exclusion.  If Mom and Dad need all or a portion of the assets, the friendly trustee will distribute that amount to them.  However, whatever Mom and Dad don’t need passes free of estate tax on their death to their children.

One enterprising lawyer dubbed this the HYCET Trust: “Have Your Cake And Eat It To Trust”.

 

The above is not tax advice for any client or matter; it is provided as a topic of general interest to our readers and should not be used for tax planning purposes.  Each client’s situation contains unique facts.

If you are interested in exploring how these rules could benefit you, please contact Drew Grey at (818) 995-0090 or at dgrey@srgcpas.com to receive advice on your specific matter.

 

 

 

November 1, 2012 Posted in Estate Tax Planning, Tax