6 Year-End Gifting Rules Every Investor Needs to Know<br><br>
According to Richard Behrendt, director of estate planning for Baird’s Private Wealth Management group, the timing of making year-end gifts is important because a transfer of property is treated as a completed gift for federal gift tax purposes only after the donor has unconditionally relinquished all dominion and control over the transferred property.
Even if the donor has no intention of revoking (taking back) the gift, simply retaining the ability to revoke the gift through the end of the year could shift the completion of the gift into the next calendar year.
Under the Internal Revenue Code, individuals may give up to $13,000 to an unlimited number of non-charitable beneficiaries in each calendar year. Married couples may double-up and make combined gifts of up to $26,000 to children, grandchildren, or other non-charitable beneficiaries.
Here are six rules investors need to consider before making any year-end gifts.
1. Gifts By Check<br><br>
Technically, the donor retains the ability to stop payment on the check or withdraw funds from the account until the time the check is presented by the donees bank to the donors bank. However, courts have ruled that the earlier presentation of the check by the donee to their bank is sufficient to complete the gift.
For example, if a grandparent with the intent to make a gift delivers a check to a grandchild in late December 2011, the gift will be deemed to have occurred in 2011 if the grandchild presents the check to their bank (for deposit or cash) no later than Dec. 31.
The timing of the gift could be critical if the grandparent is in failing health and intends to immediately utilize the annual gift tax exclusion for the following year by making another $13,000 to the same donee on Jan. 1, 2012.
2. Gifts Of Securities<br><br>
For example, if a donor delivers written instructions to his broker on Dec. 31, 2011 to transfer $13,000 worth of securities to a donees account, but the securities are not transferred to the donees account until Jan. 1, 2012, the annual gift tax exclusion for 2011 could be disallowed by the IRS on the grounds that the gift was not completed until 2012.
A gift of corporate stock in certificate form is a completed gift when the donor endorses the stock certificate and delivers the certificate to the donee or the donees agent.
3. Joint Accounts<br><br>
For example, if an elderly parent adds a son or daughter as a joint-owner on the parents checking account as a mere convenience, and the child withdraws funds only as needed to pay the parents recurring bills and expenses, no gift has been made.
4. Large Gifts<br><br>
The exemption is scheduled to increase to $5.12 million for 2012, but it may revert to $1 million in 2013 if Congress does not extend the higher exemption amount beyond 2012.
Donors should consult with an attorney or accountant about the tax reporting requirements of making gifts above the $13,000 annual gift tax exclusion amount.
5. Charitable Gifts<br><br>
Similarly, charitable gifts charged to a credit card are deductible in the year made, even though the credit card bill is paid the following year. Only donations to qualified charitable organizations are tax-deductible.
6. The Clock Is Ticking<br><br>
Making gifts above the annual gift tax exclusion amount may require filing a federal gift tax return. For additional guidance, consult with your financial advisor and tax professional.