Tax-Planning Client Letter on Irrevocable Trusts, Gift Tax, and Estate Tax (Essay Sample)

Tax-Planning Client Letter on Irrevocable Trusts, Gift Tax, and Estate Tax
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Under the federal estate and gift tax rules, individuals can make significant gifts that are exempted from federal transfer of tax. This owes to the reality that the Taxpayer Relief Act of 2012 made this opportunity permanent. It follows that professionals in the financial and accounting sector should understand the exemption because it will help them advice their clients appropriately. This paper examines the gift tax exemption using a case study of a grandfather who wants his two grandchildren to inherit his fortune.
According to the Act in question, an individual can be exempted from taxation if he/she passes down property in form of a gift. This owes to the reality that the Act exempts taxation for property inherited as a gift provided the worth of the gift does not exceed $5.25 million. It is also notable that the appreciation value is also exempted from tax after the gift is transferred to another person. According to Vento (20102), the Act also allows a trust to allow an annual income of $14000 per year per beneficiary without taxation. Amounts over $14,000 per year are taxable. This act also considers expenses such as medical or tuition expenses from taxation. The law also exempts taxation for real estate up to $5.25 million.
Considering the exemptions from the Taxpayer Relief Act, the grandfather should gift each of his grandchildren a maximum of $5.25 today. Extra assets or property should be placed under a trust fund for the grandchildren. This owes to the reality that the trust fund will allow the grandchildren to earn a non-taxable income of $14,000 per yea...