However, if you transferred assets to a trust during 2012, chances are that you're not done yet. Most transfers to trust made in 2012 will require a gift tax return to be filed in 2013. Even if no gift tax is owing due to your $5.25M lifetime gift tax exemption, a return must still be filed.
Many readers may ask why a gift tax return is so necessary if no gift tax is owing. First and foremost, it's a legal requirement to notify the IRS of any reduction in your lifetime gift tax exemption. Second, and perhaps more importantly, it is necessary to property allocate your Generation Skipping Tax (GST) exemption.
GST is a tax assessed whenever a transfer is made to anyone more than a generation beneath you. The classic example is a transfer to grandchildren. When you make a transfer into a trust, GST is assessed whenever that trust makes a transfer to a grandchild or other "skip person".
Each person has a lifetime $5.25M GST exemption which they can allocate to trusts. For example, if you make a $1M gift to a trust and properly allocate $1M of your lifetime gift tax exemption to that trust, any and all future distributions from that trust will be GST-free, no matter how much the trust appreciates. The exception would be if you make later transfers to trust which are not allocated any of your GST exemption.
Failure to property allocate your GST exemption to your trusts on a gift tax return is passing up a huge opportunity and may result in additional GST owing. Even if you gifted assets to a trust where only your children are beneficiaries, GST may apply if your exemption isn't properly allocated. For instance, if one of your children were to pass away before termination of the trust, without a proper GST allocation, more than likely GST would be owing upon passage of that child's assets to your grandchildren.
Gift tax returns were due on April 15, but even if you missed the deadline most negative consequences can be avoided by filing ASAP. A gift tax return is one of the most difficult tax returns to file, and you shouldn't trust its completion to just any CPA or attorney, as this link from the Wall Street Journal explains: http://bit.ly/ZyBodW. If you need a gift tax return completed, feel free to contact me.
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