WE Are 78 and 82 years old and wish to help avoid taxes for our estate
Generally you have a $14,000 per gift recipient per year gift tax exclusion. If you and your wife jointly own the stock, the gift tax exclusion doubles to $28,000 per recipient per year. You also have a $5,250,000 (2013) lifetime gift tax exclusion. Note that the value of the gift is determined by the fair market value of the gift. So for stock its the average trading price on the day of the gift.
So what that all means is that you can give the stock up to $14,000 or $28,000 per child per year without having to pay gift tax or file a gift tax return. For gift amounts above the annual exclusion, you won't have to pay gift tax unless you exceed the lifetime maximum, but you will have to file a gift tax return. When you exceed the annual exclusion, the IRS starts keeping a tally of the lifetime amount.
One other thing you should know is that your children will take your basis (what you paid) in the stock. This sets them up for a lot of gain recognition down the road. On the other hand, if they acquire the stock upon your death, they get a stepped up basis of the value of the stock on the date of your death.
Each of you has a $5,250,00 exemption for estate tax, so most likely no tax must be paid for gifts. That amount will increase slightly next year. You each have $14,000 annual gift tax exemption. This means that you (as a couple) could give $28,000 per year to each child wiithout any amount of your estate tax exemption being used. However, you must file a gift tax return - and it is best to have an accountant advise you and prepare that type of return (Form 709). No one pays gift tax if you prepare and file the 709 properly. You will need valuations for the stock, etc... please consult your CPA for details. There could be capital gains tax when the stock is sold - depending on what you give away. The basis of the stock must be determined.
First and foremost, you may not be liable for any estate taxes if your estates do not exceed a joint total of $10,500,000, assuming you have not made any taxable gifts in prior years or otherwise used your lifetime gift and estate tax exemptions. If you believe that your estates may eventually be subject to an estate tax, you should disclose your specific concerns and goals to your attorney. Some things your attorney may suggest are outline below:
If your estates are liable for an estate tax, the top rate is 40%. The estate tax is paid by your respective estates.
You and your spouse may each gift up to $14,000 to any individual recipient, free of a gift tax. There is no limit to the number of recipients to whom you may make gifts. For example, the two of you may jointly gift $28,000 to your son, $28,000 to your daughter, $28,000 to your gardener, landscaper, best friend, or anyone else. This is an effective way to gift property that would otherwise be included in your estates. Other effective methods that, if appropriate, may help diminish your taxable estate include various grantor trusts, personal residence trusts, family LLCs, etc. These methods can be significantly more complicated than outright gifts.
While I generally agree with the answers the other attorneys have given regarding the proposed gift, the question still remains whether you should make ANY gifts at all.
My first "rule of thumb" in dealing with Estate Planning/Elder Law clients is "Do not give away that which you may need!" If your combined estate will not be subject to Federal or State Estate Taxes (not very likely unless your estate is over $10 million!), making gifts so as to reduce your estate for Estate Taxes purposes is not indicated. On the other hand, what planning have you made to pay for possible long-term care costs if one or both of you have to enter a nursing home? In today's financial environment, nursing home costs may well deplete your estate to a greater degree than any estate taxes! Further, making gifts without proper planning now may well come back to haunt you if you have to go to a nursing home and have insufficient assets to pay for the care and apply to Medicaid for help with the costs. Uncompensated transfers (i.e., gifts) if made during the look-back period can result in penalty periods during which you are not eligible for assistance from Medicaid for nursing home costs.
When attempting to advise clients in situations like this, I try to get enough information about the "big picture" of the clients' overall situation before making any specific recommendations or advise about gifting assets or other possible planning.
I recommend you locate a good Elder Law/Estate Planning Attorney in your community and consult him or her about whether your desire to gift this stock makes sense in your overall financial situation.
I agree with my colleagues, in reference to the question that you asked. Underlying questions, however, would be what taxes you are hoping to avoid for your "estate." There are no federal estate taxes on estates of less than $5,250,000, in 2013. There is also no State estate tax in NC. If you are trying to limit your income tax exposure, it would depend on a number of facts not included in your summary.
Aside from the things mentioned by my colleagues, you need to meet with an attorney to see if gifting these stocks is a good idea. It could have other ramifications that you have not considered. If you are trying to avoid estate tax, then Medicaid qualification is probably not something that you would ever need to think about. There may be other issues, however. It is better to consider all of the consequences before committing to a course of action. Many attorneys offer initial consultations at no charge.
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