Q: For estate planning purposes, now is a good time to do a little gifting. Would you run over some of the doÕs and donÕts?

A: Thank you for your timely question. Your area of concern is much more topical for this time of year than the column I intended to submit, especially since each year in January I spend a lot of time trying to undo the problems caused by holiday gifting.

The general rule is that any transfer for value without receiving back adequate reimbursement is considered a gift and therefore is subject to gift taxes (approximately 45% total for both state and federal). So that cup of coffee you bought me is a taxable gift, and since it cost $1.50, you owe approximately $.68 in gift taxes.

But there are three main exceptions. First, one person can give up to $11,000 per person per calendar year. There is no limit as to the number of recipients or the total amount transferred in any calendar year.

Secondly, a total of $1,000,000 (going up to $1,500,000 January 1st) can be given away during a personÕs lifetime to any number of persons. But if this exemption is used, the appropriate tax form must be filed. Thus, you can give me tax-free $1,011,000 this year (the lifetime exemption of $1,000,000 plus the $11,000 per person per year amount) and $511,000 January 1st (the difference between the lifetime exemption of $1,500,000 beginning January 1st, less the $1,000,000 given in 2003, plus the 2004 $11,000 exemption). But if you do, then you have nothing left to shelter assets from estate taxes at your death. The $11,000 can also be used for any number of other people this year and again next year, as pointed out in the prior paragraph.

The final major exemption is that one spouse can give any amount to the other spouse. So Bill Gates can give his wife forty-eight billion dollars tax- free.

Besides a giverÕs failure to abide by the rules, gifting triggers many other troubles. The first major problem I encounter is that either the total gifts (even to a child) exceeded $11,000 or the tax form to deduct the amount over $11,000 from the estate tax exemption ($1,000,000) was not timely filed.

The second major problem is gifting to minor children. Although a minor can own property, he or she cannot (as a general rule) enter into binding contracts. Thus, a gift titled in the name of the minor should instead be made into a trust or under certain protective statutes, which in many states are commonly known as the Uniform Gift to Minors Acts. This ensures that an agent is in place to legally handle the assets and make decisions concerning the distributions. Otherwise a Court-appointed conservatorship might need to be established, which generates expense and red tape. One word of caution Š always name at least one successor as a back-up to the person or entity in charge of managing the gift. If the first trustee or agent stops acting, and no provision is in place for a successor, then it would be necessary to go to court to have one appointed or the asset might be "frozen" until the protective device ends when the minor reaches majority age.

Although advice might differ, I would suggest to avoid gifting appreciated assets. The amount in capital gains actually paid usually is not that much different between the giver and the giftee (the recipient receives the giverÕs tax basis for capital gains purposes). But more importantly, such a transfer dilutes the amount actually gifted. For example, stock worth $11,000, with a basis of $1000 (what was paid for the stock) means $10,000 of gain or tax of letÕs say $2000 if later sold by the receiver at $11,000. Thus, $9000, not $11,000, has actually been transferred.

This time of year, especially with older folks, too many liquidated assets are given, forcing the giver to pay taxes when appreciated assets are sold that otherwise could have been kept in his or her financial inventory. Often it is necessary to ask the recipients to return at least part of the gifts (which also is a taxable event for them).

DonÕt have space to discuss the myriad of "tax deferred" college plans for grandchildren, but for many, many reasons, it might be better to wait before jumping in.

It is said that the Good Lord likes a happy giver (and receiver also), but make sure that after the initial warmth of the moment, the afterglow is not chilled by tax and legal hassles.