Thursday, June 04, 2009
Lifetime Transfers Of Gifts And The Advantages Of Making Transfers Prior To DeathBy: Jeff Thibault
Transferring property during one's lifetime can be extremely beneficial in several ways including facilitating the client's goals, protecting assets, minimizing tax liability, and avoiding the uncertainty and expenses of probate proceedings. Transfers of assets during one's lifetime can be a tricky subject but can be used extremely advantageous to a client's benefit as well as those to whom the property is transferred. The attorneys at Yesner & Boss, P.L. are well versed in state and federal estate, gift, and generation skipping transfer taxes which allow us to advise clients regarding the benefits and differences of various techniques of transferring assets including lifetime transfers.
Transfers of property during one's life are referred to as inter vivos (during life) transfers whereas transfers that take effect at one's death as provided by one's will or by state intestate (inheritance) laws are referred to as testamentary transfers. One of the greatest benefits of lifetime transfers is the significant tax savings possible as opposed to transfers taking effect at death which will be subject to estate tax.
One of the benefits of making transfers which are subject to gift tax rather than estate tax is the actual nature of each of the taxes themselves. Gift tax is "tax exclusive" which means that the gift tax base does not include the tax payable whereas estate tax is "tax inclusive" meaning that the estate tax base includes the tax payable. The difference between these two taxes is best shown by an example. In the situation where a parennt wants to trannsfer $1 million to their child and the tax rate is say 50%, if the parent transferred that $1 million at death to their child $500,000 would go to estate taxes and $500,000 would be left for the child. If however the parent gifted the same $1 million to the child before their death they would pay 50% of $1 million, or $500,000 to transfer the entire $1 million. Therefore upon death it would cost $500,000 to transfer $500,000 to the child, but by gift it would cost $500,000 to transfer $1 million.