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What is adequate disclosure and why does it matter?

One aspect of estate management and planning is gifting. Gifting assets can be a useful way to preserve your estate and protect it from unnecessary taxes. Of course when considering any type of gift giving it is important to discuss your wishes with an estate attorney with tax knowledge to stay informed of any tax consequences your gift may have.

One commonly overlooked area of gifting is the adequate disclosure needed on your gift tax return to start the clock on the statute of limitations which is three years. When you give a gift and do not file a gift tax return, there is not a statute of limitations, and upon your death the IRS may question the value of whatever asset you gifted. However, if you are wise and file a gift tax return, the three-year clock starts and upon your death, after the statute of limitations has run dry, the IRS can't do a thing about your gifted assets.

The issue of adequate disclosure comes in when you file a gift tax return and do not provide the IRS with proper information about the asset. For the IRS to be satisfied, you must include asset valuation done by appraisal, its related paperwork, and the method of gifting. Depending on the asset, other documentation may be needed. However, without the helping hands of a knowledgeable estate attorney you may not know what is required for the statute clock to start running.

If you fail to provide the IRS with adequate disclosure on your gift tax return, you may not even know there is an issue until the IRS questions the gifts valuation. There have been cases where the IRS has questioned taxpayers years after assets were gifted. In many cases, taxpayers assumed the statute clock had run out when in reality it had never started because there wasn't adequate disclosure.

Estate planning is complex, and gifting can play a crucial role in tax savings and asset protection if done right. For questions or concerns about your estate or gifts, a trusted attorney can help you stay informed and protected.

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