At the end of the year, the federal gift-tax exemption will fall from $5.12 million to $1 million, making this the perfect time for advisors to remind clients that now is the time to take advantage of the higher limits and avoid future estate taxes for beneficiaries.

The Wall Street Journal ( recently listed several ways that clients can take advantage the current gift tax limits:

  • – Forgiving loans to family members;
  • – Equalizing cumulative financial gift amounts to children and grandchildren now, so they can avoid arguments and estate taxes later;
  • – Spreading financial ownership of a family business amongst beneficiaries;
  • – Creating irrevocable trusts that ensure peace of mind for clients and their beneficiaries.

Loan Forgiveness

If your client has loaned money in previous years to family members, this is a good time to turn that loan into a tax-exempt gift. However, clients must be careful when using gifts in this way to avoid back tax penalties or audits for themselves and their family members.

According to the IRS, those previous loans can be brought into question without a proper paper trail to prove that they were not actually gifts at the time they were made. To avoid questions from the IRS about the validity of the previous loans, clients can give family members money which can be used to pay off the loan. Clients must keep documented proof of this loan repayment in order to avoid penalties.

Equal Division of Assets

Wills and trusts often call for the equalization of gifts to children and grandchildren for weddings, education, homes, or other needs. To prevent squabbling among family members about fairness, clients can take advantage of the higher gift limits by making that equalization now rather than later, ensuring the equal distribution of financial gifts to all beneficiaries.

Continuing the Family Legacy

Under current law, current gift tax-exemptions and valuation discounts for minority stakes in a business allow clients to spread out ownership of the family business among beneficiaries. By gifting stakes in a business, clients can avoid future estate taxes and maintain continuity of ownership. These valuation discounts may be taken away, so now is the time to advise your clients to make those gifts.

Peace of Mind

Irrevocable trusts are the tried and true way to safeguard wealth. Spousal limited-access trusts (SLATs) can ensure that clients take advantage of gift-tax limits without giving away too much too soon.

The time has never been better for making those taxexempt gifts, so talk to your clients now before the law changes.

I hope this article has helped you and your clients. As always, if you have a specific case or concern you’d like to discuss, please contact our office.

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