A gift of up to $12,000 each calendar year (effective 2006) to as many persons as you can afford is the best way to transfer wealth to your children, grandchildren and other potential beneficiaries.

If your total gifts (e.g. birthday, holiday and special) to one person in a calendar year exceed $11,000, you must file a federal gift tax return (there is no Michigan or Florida gift tax). The excess over $11,000 will be taxed then or at your death. If your spouse signs a consent form on the federal gift tax return, the two of you can give up to $22,000 each year to each individual.

Annual gifts, because of the "annual exclusion" of $12,000, are tax free. Neither you nor the beneficiary pays any tax, even if you die immediately after the "present gift" is made (with some exceptions, such as gift of insurance on your life).

A gift now probably will buy more than $12,000 will buy 10 or more years from now. The gift also carries with it the earning power ("income stream") of the money you give. A 5% CD will earn $600 a year for the beneficiary of a $12,000 gift.

The Tax Relief Act of 2001 increased the lifetime gift exclusion to $1,000,000 in 2002 and thereafter.  It will no longer increase at the same level as the federal estate tax.  The federal estate tax is scheduled to increase up to $3,500,000 and then be eliminated in 2010.  No such elimination is planned for the Federal Gift Tax.  Lifetime gifts will continue to require careful planning.

What should you give?  Nothing is better than cash (meaning cash equivalents, as a check). If you give $8,000 worth of stock, for which you paid $2,000, and the recipient sells it, he or she has your old income tax cost basis and, on sale, must pay income tax on the $6,000 gain.

When should you give?  Many advise giving at year-end, when you know the total of all other gifts to each person earlier in the year. However, at holiday time some clients give checks dated the following January 1, so that, if the client lives and the check is negotiated, the "following" year's gift already has been made.

Warning:  Before making any substantial gift, try to answer the following question: Will this gift do more good than harm? We have seen some tragic results of immature recipients getting too much too soon. Tax results are important, but what is best for your family is much more important.

This summary is intended as a source of general information.  If you have questions or desire additional information, please contact Ryan M. Wilson at (517) 377-0897 or rwilson@fraserlawfirm.com.