If you're a grandparent whose retirement planning includes giving a grandchild a substantial amount of money, this is the year to do it.
Eric Reis, partner in the Dallas law firm of Thompson & Knight, points out that last year there was a gift tax of up to 45 percent and a generation-skipping transfer tax of an additional 45 percent once all exemptions were exhausted. This year, the gift-tax rate is only 35 percent and there is no generation-skipping transfer tax.
For a multimillion-dollar gift, the tax savings can be enormous.
In 2011, the generation-skipping or "grandchild" tax is scheduled to have an exemption of only a little more than $1 million, with the maximum tax rate rising to 55 percent. Congress may step in and reduce this, but it might not happen right away and the tax will undoubtedly be more than it is this year.
Reis, an estate planning attorney who works with many wealthy families facing retirement, explains that most people who give their grandchildren -- instead of their own children -- large gifts do it for one of two reasons. Their own children are financially comfortable and giving them more money will only complicate that generation's estate planning. Or, they have concerns about their grown children's or their grown children's spouses' ability to manage the gift, so they give money directly to the grandchildren.
While this might sound like a retirement planning problem that only a zillionaire has to consider, $1 million isn't as much money as it once was. Families with businesses and real estate whose transfer to the next generation is likely to be affected by rising estate taxes might want to think about it.
If all you are going to do is give the gift directly, Reis says, "Just write the check."
But if you have something more complicated in mind, like putting the money in a trust, it is important to get estate planning advice from an accountant or an attorney like Reis while there's still time to put all the details in place.