Gifts to Family Members

Making gifts of property to family members is a useful tool that may accomplish a variety of asset protection and estate panning objectives. A properly structured program of gift giving, to one’s children or grandchildren, can result in a minimization of estate and income taxes and can also be useful for achieving a significant degree of lawsuit protection.

There are significant tax advantages to a gift giving program. Lifetime gifts reduce the size of one’s estate and consequently minimize the ultimate amount of estate taxes. Since estate tax rates are high, substantial savings will be realized from this technique.

A gift giving program may also produce some annual income tax savings. If a donee is fourteen years or older, income earned on the property transferred to him will be taxable to the child rather than to the parent. If a child is in a lower income tax bracket than the parent, a gift program will effectively spread the income tax liability of the family among lower bracket taxpayers and will thereby reduce the overall income tax burden.

A gift program also provides significant lawsuit protection. If a gift transfer does not violate the fraudulent conveyance laws, property that has been transferred to a child or a grandchild cannot be reached by a judgment creditor of the husband or wife. Once an effective gift has been made from a parent to a child, this asset cannot be seized by the parents’ creditors.