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  • Writer's pictureRandall Fisher

Tis the season of giving (but not just yet)…

One of the major headlines of last year’s tax compromise in Congress, the gift-tax exemption jumps to $5 million from $1 million for individuals and to $10 million from $2 million for couples in 2011 and 2012.

Yes, that means people can give away that much now without paying a penny in taxes. But what does it really mean?

There is estate tax, gift tax, death tax and inheritance tax and they all jump around to confuse the rank and file. So we’ll take it real slow and try to simplify it.

Rightly or wrongly, we as a society look to tax the transfer of assets at death. We exempt a certain amount and then anything over that society asks the dead to pay a percentage of what they transfer to the living (otherwise known as the “estate tax“). The key words in this paragraph are “exempt a certain amount.” Currently the federal government exempts $5 million per person (the federal “estate tax exemption“; the state has a different one; that is a different fairy tale for a different movie) and spouses who have left over exemption can “port” that exemption to their spouse when they die. (If you read the Wall Street Journal you will find discussions about “portability“. )

We as a society also allow someone to transfer their wealth to another by gift while that someone is still alive. Society exempts a certain amount per year (currently $13,000 known as the “annual gift tax exemption“) and society exempts a certain amount over one’s lifetime (now $5 million and currently the “lifetime gift tax exemption“).

(Lawyers don’t do anything without disclaimers so here’s mine: any tax law is always subject to change. So are these. So always check with your professionals before making tax decisions.)

The often not discussed fact is that the lifetime exemption for a gift is also linked to the amount of the transfer value that is exempted when someone dies. So here’s what happens.

You may think you are taking advantage of a new  gift tax exemption by giving it away now, but you are also using up your lifetime estate tax exemption. As an example, you are divorced and own a business worth $10 million. You gave half of it to your children and then pass away. Rather than having a $5 million exemption to cover the other half, you have used it up in a gift and your children will have to pay estate tax on the other half of the business at a 35% rate (roughly $1.65 million).

But if you are married, there are things that portability can do for you. If you like your children (this is sometimes questionable at certain hours of the day), then gifting away an estate at $13,000 a clip starts to become an option. But even the $13,000 a year gambit can become a problem if you don’t do it correctly.

But rather than read about my rambling about it, I’ll refer you to the Wall Street Journal. They covered the topic in the following story:

When it comes to business and estate planning, we provide options and alternatives here for clients. There are many professionals that may do so near where you live. This is one of those “don’t try this trick at home” moments. Consult with a professional if you want to see what can  be done to help. I have often spoken about being a member of Wealth Counsel and the Advisors Forum, a national network of experts in Estate Planning and a national  interdisciplinary network of financial and wealth planning experts. If you don’t have someone you trust, contact us at with your town and we’ll send you a long list of the best trained referrals.

Good luck and good hunting!


The Fisher Law Office provides Estate Planning, Estate Administration, Wealth Planning, Business Law, Succession Planning, Asset Protection and Security Clearance advice to businesses and individuals in Annapolis, Arnold, Pasadena, Bowie, Glen Burnie, Severna Park, Edgewater, Baltimore, Columbia, Stevensville, Chestertown, Dunkirk, St. Mary’s City, Washington, D.C., BWI Airport, Anne Arundel County, Prince George’s County, Queen Anne County, Harford County, Talbot County, Calvert County, Baltimore County, Baltimore City. We can be reached by email at or on the web at

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