2018 Tax Changes - An Example

Posted on: May 28th, 2018
Why do you need to be aware of the 2018 tax changes?  Because it could effect your estate plan!

Here is how that could happen; the benefit of the forgiveness of gain, for income tax purposes, at the owner’s death, is lost if the owner were to gift the asset before the owner’s death.  As with most estate tax issues acting without clarity can create a treacherous error which would cause a triggering of substantial taxes on the subsequent sale of the gifted item.
 
Let us assume that a person has used one or more of these strategies during the time when the amounts that were exempt from federal estate tax were much lower, for example; on estates valued at $5 million and $10 million in 2011.  Assume further, that person’s etate is now less than the new higher limits – which are referred to as exemptions – even without these value reduction techniques. Then the effect of the attempted tax reduction techniques will actually prevent the full use of the step up in basis at death for income tax purposes with no corresponding estate tax benefit.
 
To avoid this potential gift tax trap, anyone considering making lifetime gifts – large or small – needs to be fully aware of the consequence of their gifting and to apply the appropriate estate planning strategies using current estate tax law.
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