Pending expiration of gift exemption could encourage major monetary gifts

Jun 28, 2011

Consumers can pass their life insurance policy down to their children through a tax exemption gift

Consumers looking to protect large blocks of retirement savings - such as a life insurance policy - may want to consider taking advantage of a tax exemption on major gifts, which is set to expire in 2012.

Currently, taxpayers are allowed to gift up to $5 million individually or $10 million as a couple without paying tax. After 2012, that exemption will drop to $1 million per person and $2 million per couple, meaning that over the next two years, there could be a run on consumers looking to gift major sums of money to their family as an inheritance.

"Clients may come to see that the $5 million lifetime exemption could be a once in a lifetime opportunity - a way to lock in high-exemption gifts without worrying about what Congress may do with the tax law after 2012," said John O'Grady, a partner in O'Grady Law Group.

Parents could pass down a life insurance policy to their children through this method, though some may be concerned the prospect of cashing in on a death benefit would discourage a child from working hard and developing their own income. Experts suggest putting a trust in charge of the account in those cases, which would only give the money to the child after they receive a certain age or hit a certain milestone.

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