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Gift taxes to increase in 2013

In 2012, Americans could give up to $5.2 million worth of gifts before being taxed 35 percent on additional gifts. Next year, that amount drops to $1 million and gift-givers may face a tax rate of up to 55 percent. While it is possible that Congress will extend the tax breaks, there is no time like the present to start giving.

Since there are only a few weeks left to 2012, it will be difficult to set up an extensive strategy, but some trusts can be set up in a matter of days.

Trusts allow benefactors to choose which heirs will receive gifts and when they will receive them. Even a basic irrevocable trust can ensure that your heirs will receive the gifts without subjecting the gifts to an heir's financial instability.

Other options include:

  • Intentionally defective irrevocable grantor trust: This trust requires the benefactor to pay taxes on trust income, therefore increasing the gift given to the heirs. It also allows a benefactor to replace cash in the trust with an appraised asset.
  • Spousal limited access trust: This trust allows a benefactor to make a spouse a beneficiary while giving heirs access to the trust funds once the spouse passes away.
  • Charitable trust: A charitable trust allows benefactors to leave money to a charity and prevents that money from being taxed as part of the estate.

Of course, these are only a few of the trust options available to a benefactor. If you are considering setting up an estate plan, now is the time to evaluate your options and decide who will receive what in the future.

Learn more by visiting our page on Boston trusts.

Source: Reuters, "Your Practice: Gift tax options for procrastinators," Jennifer Hoyt Cummings, Nov. 20, 2012

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