CIA’s Advice on the $5 million Gift-Tax Exemption

During an interview with Barron’s Online, Mitch Reiner encourages individuals and couples to keep solutions simple based on the bill passed by Congress regarding the $5 million gift-tax exemption.

The opportunity for individuals to give away $5 million tax-free through the end of the year should cause nothing but cheer within the ranks of the wealthy.

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Although it sounds great, many of the folks who are candidates to save millions of dollars through the lifetime temporary gift-tax exemption — $5 million for individuals, $10 million for couples — find themselves surprisingly unsettled. The most common of fears amongst potential givers include spoiling their children and grandchildren or, worse yet, ending up giving away too much and having to later approach those kids, hat in hand. Once you give the money away, you can’t take it back.
In 2010, Congress passed the $5 million gift-tax exemption to replace (at least temporarily) the $1 million exemption that had been the standard since 2002. Barring further action, the exemption will revert to $1 million at the end of this year.

Proper planning can also protect donors, should a financial reversal occur after they’ve made a substantial gift. For instance, individuals can create trusts for which their spouses are among the permissible beneficiaries, says Frunzi. In an emergency, the beneficiary can borrow from the trust or take a distribution, she explains.

In fact, so numerous are the options for tailoring gifts that it’s easy to become intimidated. Perfect can be the enemy of the good, says Mitch Reiner, chief investment officer at Capital Investment Advisors, in Atlanta. “Don’t get overwhelmed by looking only at complex solutions,” he advises. “There are simple solutions, too.”

For those who miss the $5 million window that’s set to close in eight months, it all depends on what Congress does. As it stands, the exemption will return to the $1 million level; however, some advisors and estate attorneys speculate that we may see a $3.5 million exemption in the tea leaves, and some think the $5 million level might be extended.

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