Physician Gift and Estate Planning

By Lawrence E. Howes; CFP™
By Joel B. Javer; CFP™ 

The annual gift tax exclusion allows the physician, and others, to give any individual $13,000 per year [$26,000 per couple in 2009] without paying or filing a gift tax return. 

There is no limit on the number of individuals who might benefit from your generosity.  

Marrieds 

If you are married, then you and your spouse together may gift to any number of individuals.  The recipients do not owe any tax on the money either.   

Excess Gifts 

Gifts in excess of $12,000 are subject to current gift tax.  A gift tax return must be filed by April 15^th of the year following the gift.  Gifts to qualified charities are subject to a different set of income tax rules. 

Lifetime Gifting 

Gifting assets to family members or others during your lifetime can be an effective estate planning technique.  A gift of money or stock to your children automatically reduces your estate. 

If your taxable estate is in excess of $2 million, then you are in the [45] percent estate tax bracket; indexed at $3,500,000 in 2009, with repeal of the estate tax and generation-skipping tax scheduled for 2010. 

This means that each dollar you can remove from your estate, and allow to appreciate in your children’s estate can help reduce a significant potential estate tax liability.   

However, if the sole purpose of gifting is to reduce estate taxes, then the Economic Growth and Tax Relief Reconciliation Act [EGTRRA] of 2001’s reduction, and ultimate elimination of estate taxes, will nullify this technique.   

You must remember that tax laws are always subject to change and EGTRRA has a Sunset provision in 2011, which in some form may not totally eliminate estate taxes.  

Gifting strategies may still be appropriate depending on your expectation of law changes and where the estate is large and life expectancy is limited.  There are gifting traps in these situations, so consult proper counsel. 

Stock Gifting 

When you gift stock you also give the recipient your cost basis. 

For example, if you have low basis stock that you are thinking about selling but are concerned about paying 20 percent in capital gains tax, you could gift portions of the stock to your children (or anyone in the 15 percent income tax bracket) and sell just enough to pay the 10 percent capital gains tax in their bracket.

The gift value is the market price of the stock on date of gift.  We are talking about an outright gift, so before you really do it, make sure you can afford to give up the cash or the asset forever. 

Conclusion

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• FINANCE: Financial Planning for Physicians and Advisors
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• Dictionary of Health Economics and Finance
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• Dictionary of Health Insurance and Managed Care

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