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If the Clock "Strikes" Twelve Midnight on New Year’s Eve and You Have Not Made Your Annual Gifts, You May be Leaving More Behind Than Cinderella

We all know the story of Cinderella.  Though her fairy Godmother warned her, she stayed at the ball too long.  When the clock hit twelve, she had trouble leaving with the clothes on her back.  Learn from her mistake. 

One of the biggest tax loopholes is a taxpayer's right to make tax-free $13,000 gifts to any number of donees ($26,000 if the taxpayer is married).  Making these gifts is an excellent way to reduce your estate and avoid death taxes.  Each year that goes by without these gifts is a lost opportunity, and a gift to your Uncle in Washington.

With an estate tax rate that may range from 35-55%, the stakes for making these gifts can be substantial.  For example, a taxpayer and spouse with three children (each with a spouse) and three grandchildren can make annual tax-free gifts of $234,000.  In certain estates, that could mean future tax savings of over $120,000 -- per year. 

Many clients, however, are not comfortable making outright gifts.  Because of this concern, Crummey trusts evolved.  Crummey trusts, named after the landmark case in this area, provide that each designated beneficiary has a right to withdraw his or her share of the gift during a specified period of time (30 days for example).  Once the period ends, the right is lost and the gift is subject to the terms of the trust, which may include significant benefits for your spouse.  Generally, beneficiaries allow this withdrawal right to lapse in "hopes" of obtaining other gifts in subsequent years.  Crummey trusts give you all the benefits of a trust, without losing the gift tax exclusion permitted for outright gifts.  It’s like having your cake and eating it too!

Many of our clients have set up Crummey trusts as part of their overall estate plan. Do you have a Crummey trust?  Have you made your annual gifts for 2010?  Have you notified your beneficiaries that they have limited rights of withdrawal?  This is essential to qualify these gifts for the annual exclusion.  Don’t celebrate New Year's Eve until you have made your gifts and sent out your notices.  We urge our clients to make gifts before year-end, to send out the necessary notices and to repeat the process when January 2011 rolls around.   

Cinderella waited too long and left a glass slipper behind.  The estate tax laws are in flux.  The best way to avoid a future of continued legislative gyrations is to give away what you can tax free each year.  Contact a member of Greenebaum’s Estate Planning Team before the year ends to make sure you've "covered all of your bases."   

Even though the content of the above Greenebaum Doll & McDonald e-bulletin is primarily informative, state and federal law obligates us to inform you that THIS IS AN ADVERTISEMENT. You have received this advisory because you are a client or friend of the firm.

About Greenebaum Doll & McDonald PLLC
Greenebaum Doll & McDonald PLLC is a widely-respected business law firm with approximately 150 professionals in five offices, serving local, national and international clients in virtually every industry. A forward-thinking business law firm, Greenebaum is committed to the practice of Breakthrough Law®.

Copyright 2010 Greenebaum Doll & McDonald PLLC.  All Rights Reserved.

  • Partner

    John is a partner in the firm's Estate Planning Department. He focuses his practice on estates, trusts, family business and disability planning, and the administration of estates and trusts. John also has an active health law ...

  • Partner

    John is Chair of the firm's Estate Planning Department. He also leads the firm's Senior Partner Committee, and is a member of the firm's Finance Committee. John, a former Certified Public Accountant, began his career in the tax ...

  • Partner

    Mark is a partner in the Louisville office and is a member of the Estate Planning and Business Services Departments. Mark concentrates his practice on business succession, estate planning and estate administration for ...



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