Newport Beach Estate Planning Attorney Can Help Californians Avoid Potential Clawbacks on Gifts

6:45 pm Asset Protection, Estate Planning, Tax Planning

claws crab e1326998676245 Newport Beach Estate Planning Attorney Can Help Californians Avoid Potential Clawbacks on GiftsRight now, the lifetime gift tax exclusion is $5 million per person and $10 million for a married couple.  However, as noted in an article posted yesterday on the Trusts & Estates website, the exclusion reverts back to $1 million next year and as the law is currently written, lifetime gifts over that amount can be “clawed back” into the transfer tax system and subject to estate tax.

This is scary stuff for those who have been generous with gifts over the last two years, or who are contemplating making gifts this year.  However, as the article further notes, there is a way to still make those gifts, but in a way that mitigates the specter of clawbacks.

Those making gifts may want to consider entering into an agreement where the recipient agrees to pay an appropriate share of the estate tax to the estate in the event of clawback. An agreement like this may also lower the taxable value of the gift by the actuarial present value of the increase in estate tax caused by the clawback. Not having this type of agreement in place could potentially bankrupt the estate.

Even if gifts are subject to clawback, making the following types of gifts can help reduce estate taxes:

  • Lifetime gifts to grantor trusts
  • Gifts of a fractional interest in property
  • Gifts to grantor retained trusts

A California estate planning attorney can help eliminate confusion as well as help families prepare for asset protection, estate planning and retirement needs.

Your California legal and financial planning experts are at your service; Contact us today.

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