Divide and Conquer

Divide and Conquer One of the most powerful of all estate planning tools is also one of the most simple. It's based on the concept of "Dividing and Conquering" the federal estate and income tax.

How do you DIVIDE AND CONQUER? Remember the phrase: "Shifting wealth and Splitting income."

By shifting wealth to other family members, it's no longer in your estate ' and the IRS can't tax it. And since you no longer own it, as it grows in value, the Service can't tax the appreciation in your estate either! And once it belongs to family members aged 14 and over, the income that asset produces is no longer taxed to you ' at your bracket; it's taxed to your child, niece, nephew, or grandchild and at his, her, or their (assumedly) much lower brackets.

So the advantages of judicious regular lifetime gifts of appreciating and/or income producing property to family members can add up! And it's easier and less taxing then ever to shift wealth and split income. Why? Because as of January 1 of 2006, you can now give an unlimited number of recipients (tax folks call them "donees") as much as $12,000 a year - every year - as long as you and they are alive - and your gifts will be GIFT TAX FREE! (The person who receives your gift does not have to report the gift to the IRS or pay gift or income tax on its value.)

And if you are married, you can DOUBLE the GIFT TAX FREE gift. That means a married couple can give up to $24,000 a year ' to as many family members as you'd like! Think about it. If you have two married children who each have two children, that's six donees (eight if you count your children's spouses ' which you can!). So $24,000 x 8 equals $192,000 a year. If you are 50 years old, you have a life expectancy of about 33 years. That means you and your spouse can make over $6,000,000 in gifts and never pay a nickel in gift taxes.

And if you are in a combined state and federal estate tax bracket of 46% when you die, the money you've saved your children (and that will not go to the IRS) will exceed $2,000,000! In fact, if the children invest that money at only 4 percent, net after taxes, it will have grown by that time to over $10,000,000!

What can you give? Just about anything. Permissible gifts include money and property (stocks, bonds, real estate, art, etc.), including the use of property without expecting to receive something of equal value in return. Or you can sell something to family members at less than its value or make an interest-free or reduced-interest loan. These are all permissible gifts.

But wait, it gets better! Under current tax rules, you can give any or all of the following each year - IN ADDITION to the $12,000 gifts described above - and pay NO GIFT TAXES:
  • Tuition Expenses that you pay directly to an educational institution for someone's benefit, and
  • Medical Expenses that you pay directly to a medical institution for someone's benefit, and
  • Gifts to your Spouse
  • Gifts to a Political Organization for its use
  • Gifts to Charities
One last point: Although most people will be making these gifts to "family members," the law doesn't limit or require the gifts be made to relatives; you can make these same gift tax free gifts in 2006 to unrelated friends!

Any discussion pertaining to taxes in this communication (including attachments) may be part of a promotion or marketing effort. As provided for in government regulations, advice (if any) related to federal taxes that is contained in this communication (including attachments) is not intended or written to be used, and cannot be used, for the purpose of avoiding penalties under the Internal Revenue code. Individuals should seek advice based on their own particular circumstances from an independent tax advisor.
Securities offered through Lincoln Financial Advisors Corp., a broker/dealer. Insurance offered through Lincoln affiliates and other fine companies.
Advisory services offered through Lincoln Financial Advisors Corp., a registered investment advisor, or Sagemark Consulting, a division of Lincoln financial Advisors.
This material is for information purposes only. We do not offer tax or legal advice. Seek the advice of a tax advisor prior to making a tax-related insurance/investment decision.
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