Estate Planning Myth #7: Gift Taxes?! I don’t make taxable gifts.

Many clients are familiar with the gift tax exclusion and understand that their small gifts (even to organizations that are not tax-exempt) will not be subject to gift tax. Where there tends to be confusion is around the concepts of what is a taxable gift and what is not, and valuation of the gift. These issues become even more important once gifts start climbing above the $14,000 annual exclusion amount.

Some unintended gifts are a simple product of habit– for example, when a parent pays for $20,000 repairs and improvements to the cabin which she already transferred to her children (or to a cabin trust or LLC) she has made a gift to the new holder of title. Another unintended gift example: for convenience sake, a parent adds a child’s name to the title of the house or to a checking account so the child can help with bill payment, etc. – this is an uncompleted gift to the child. Further, there are more complicated issues that arise when there are restrictions on use of the thing that is being gifted – like an interest in a trust, real estate or closely held business. Understanding the nuances of gifting and valuation is necessary to avoid missteps.