Around the World and Across the Generations: Leveraging a $5M Lifetime Gift Tax Exemption

Spring 2011

Each person who is a U.S. citizen or resident has available, during 2011 and 2012, a $5 million annual gift tax exemption. While use of this credit during one’s lifetime reduces the amount of the estate tax credit that is available at death, it is often a good use of the credit to make transfers out of one’s estate prior to death so that all future appreciation would avoid federal estate tax. Furthermore, if Congress does not change the law, in 2013 the credit will revert to $1 million for both gift and estate tax. Thus, there is a window of opportunity to remove assets from one’s estate tax-free, which may never again be available. Flaster Greenberg is regularly involved in structuring estate and gift tax planning. 

Recently, Flaster Greenberg was involved with assisting clients in establishing trusts for their two children to which, between both of them, they will transfer several million dollars in value of stock in a closely-held Asian corporation. The clients will be able to take advantage of various transfer tax discounts in transferring the assets to the trusts so that a value in excess of $5 million ($10 million between the husband and wife) can actually be transferred to the trusts, while staying within the $5 million credit amount. 

This transaction involved structuring to address not only the federal estate and gift tax, but also minimizing impact of the federal generation skipping tax, and also dealing with the foreign country’s transfer taxes on the transfer of the shares to the trusts.

Similarly, Flaster Greenberg attorneys formed a limited liability company (LLC) to which the husband and wife clients will transfer a substantial amount of investment assets, and will then make a gift of the LLC interests to a trust for their children. 

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