This Year, Give Santa A Good Lawyer

With a good lawyer, Santa can visit not once, but twice, this Christmas Season. Santa makes his annual appearance on December 24 at the beginning of the Twelve Days of Christmas.  Santa’s lawyer can show him the benefit of an encore performance in January, at the end of the Twelve Days of Christmas, known to some as Little Christmas.  A mere 12 days later, January 6 is in a brand new tax year. Whether you are the Santa making the gift or the very grateful kid at heart accepting the gift, the Annual Gift Tax Exclusion presents a planning opportunity.

Large gifts are, unfortunately, taxable, and even Santa has an Uncle Sam.  Santa might have to pay a tax on an especially large gift, but Santa fortunately knows all about the Annual Gift Tax Exclusion.  It allows Santa to make very generous gifts without paying a Gift Tax, and that ultimately means more for those very grateful “kids” who are young at heart.

Everybody can take advantage of the Annual Gift Tax Exclusion.  Santa can give $13,000 per year to any number of people free of tax.  Santa could give Sally, Johnny, and Billy $13,000 each, and Santa would pay no gift tax.  In fact, Santa could give $13,000 to everybody on the planet, and he would still pay no Gift Tax, although we might then begin to confuse Santa with Ben Bernanke.

For the moment, let’s say Santa wants to limit his gifts to Sally, Johnny, and Billy.  Now, Mrs. Claus is also a generous soul, and she can also give $13,000 per year to Sally, Johnny and Billy free of tax.  That means that Sally, Johnny, and Billy could each receive $26,000 in 2010, and the Clauses would remove $78,000 from their estate for tax purposes, pay no gift tax, and potentially do some good for the children.

Remember I said that a good lawyer can get Santa to visit twice in 12 days?  Well, Santa and Mrs. Claus can do the very same thing at Little Christmas, in January.  They can give the three children another $26,000 a piece.  If Billy is planning to buy a home in February, the Clauses have just given him a down payment $52,000, completely free of Gift Tax.

Although he is very generous and merry old soul, Santa does realize that young children should be not given large sums of money to manage. Fortunately, Santa’s Elves did their homework and told Santa all about making gifts under the Uniform Transfers to Minors Act.  The tax code actually allows Santa to make a gift to a person under 21 by putting the gift in trust, ensuring many happy holiday seasons for the children in the years to come.

Santa did make the mistake last year of giving a $13,000 check to Joey. Santa didn’t realize that Joey was flying to the islands between Christmas and New Year’s. Joey didn’t cash Santa’s check until January 2 of this year. It meant that Santa made the gift to Joey in a different year than he had intended, completely undermining a plan that Santa had carefully made, and had checked twice.

Santa was recently delighted to learn that there is no limit to giving amounts paid on behalf of somebody directly to an educational institution for tuition payments or to a health-care provider for medical expenses.  Santa is interested in learning more details, and we are scheduled to speak on December 24.  Although we have not yet set an exact time, he knows when I’m awake and available.


Posted in Bankruptcy, Debt, Estate Planning, Taxes.

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