Year-End Wealth Transfer Opportunity � Annual Exclusion Gifts

Your Trusted Advisor Year-End Supplement

December 27, 2007

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Estate planners often recommend complex and highly technical estate planning techniques to their clients for a variety of reasons not the least of which are tax minimization and creditor protection. However, clients should not overlook a very simple yet significant way in which to transfer substantial wealth to family members through direct gifts that take full advantage of the annual exclusion from gift taxes. The annual exclusion amount is currently set at $12,000.

Consistent annual exclusion gifts can be a simple but powerful component of a client's overall wealth transfer plan. Consider the following:

A single adult making a gift of the current annual exclusion amount of $12,000 per year over a 20-year period, with the amounts invested at 8 percent after tax, would grow to almost $600,000 over 20 years, $1.4 million over 30 years and $7.4 million over a 50-year period. If the individual is married, the above figures could be doubled. While it is unlikely that a parent would gift for the full 50-year period, the above illustration is helpful in demonstrating the considerable financial impact consistent annual exclusion gifts make.

Many clients may not be in a position financially to make such gifts until later in their life, yet even starting at age 60, when the time left to make such gifts may be another 20 years, a couple with two children and 4 grandchildren could gift a total of $144,000 a year and if invested over a 20-year period at 8 percent the gifts would have a value of $7 million and if invested at 12 percent would have a value of $11.6 million.

Sometimes clients do not take advantage of these annual exclusion gifts because they either fail to remember to make the gift or they do not consider such gifting a meaningful technique. However, seeing the dramatic impact these gifts can make over time, clients should be encouraged to use this simple but powerful technique more consistently with more family members. Click here for a graphic illustration.

December 31, 2007 is fast approaching and any 2007 annual exclusion gifts must be made before year end. Do not hesitate to call your estate planning lawyer at Bracewell & Giuliani if you have any questions about annual exclusion gifts or any other estate planning issues.