Decide what asset you may want to gift. You can gift cash, stock, a car, a house or a life insurance policy. Pretty much anything you own can be gifted to anyone you want. First, decide exactly WHAT asset you want to gift. Keep in mind the type of asset and the value. Cash is worth what it is. Things like stock or a house is worth it's actual fair market value. Be sure you have proof of the value, like an appraisal for a car or house, or proof of the per share value of the stock on the date of the gift.
Decide to whom you want to gift.
You may want to benefit your children or grandchildren. Maybe to help with a house downpayment or for college. Parents also sometimes gift away their assets to a child in order for the parent to qualify for Medicaid to pay the nursing home. Make sure you pick the right person. It would be obvious that if you want to help your grandson purchase a new car, that you give the money directly to him. If you are gifting assets in order to qualify for Medicaid, you want the child to whom you give the assets to hold them if you ever need them again. You may even have a charitable inclination and you want to make a gift to your church or a favorite charity. Sometimes an odd lot of stock that is hard to sell is a perfect gift. Or, if you have a highly appreciated stock that you don't want to pay any capital gains tax on, consider giving it to charity. You get an income tax deduction for the current fair market value and the charity pays no income taxes.
Transfer the asset to your chosen beneficiary.
If you are giving cash, all you have to do is write a check payable to your child, grandchild or the charity. If you are transferring stock, you have to sign off on the stock certificate and have it re-issued to your beneficiary. Or, if you have your stock in "book form" with a brokerage house, you can simply instruct your representative to transfer the stock electronically to your beneficiary. For a car, you have to sign off on the title and give the title to your beneficiary and they can have it re-issued to themself. With a house, you need to have an attorney prepare a new deed to your beneficiary. You (and in some states, your spouse) have to sign the deed and give it to the new owner. They will have to record the deed to officially complete the transfer.
How to avoid gift taxes.
If the fair market value of the gifted asset is less than $12,000 ($13,000 in 2009) per person per year, there is no need to even file a gift tax return. There is no gift tax and the gift is NOT income taxable to the person or entity receiving the gift. If the fair market value of the gifted asset is over $12,000 ($13,000 in 2009) per person per year, but under One Million Dollars, there is the requirement of filing a gift tax return. It must be filed by the person giving the gift. As long as the gift value is under One Million Dollars, there will be NO gift tax, because everyone has a lifetime exemption of One Million Dollars to use to avoid gift taxes. You can gift up to One Million Dollars in one lump sum or in many parts, and never have to pay any gift taxes. The gift still is not income taxable to the recipient. If you are fortunate enough to have so much money that you can afford to give away more than One Million Dollars, you WILL have to pay some gift taxes.