If you’re thinking about giving money away to family members, there may never be a better time. Tax relief legislation that passed late in 2010 provides unprecedented lifetime wealth transfer opportunities. The catch: you need to act fast.

Beginning January 1, 2011 the amount that an individual may give was expanded to $5 million (in excess of the unlimited in number $13,000 annual exclusion gifts). This is the first increase in the lifetime giving amount since 2002 when it became $1 million. The $5 million includes transfers at death, so if you give that much during life, your “at death” transfers will likely be fully taxable. However, the $5 million exemption technically expires at the end of 2012. Therefore, waiting to use your exemption to save tax at death could be risky.

The advantages of lifetime gifts are numerous, including moving appreciating assets from your estate, transferring income-generating income property to beneficiaries who need income and may be in lower income tax brackets than you, and getting to see beneficiaries enjoying your gifts, which obviously doesn’t happen with “at death” gifts. In addition, for those who live In Washington state, gifts during life are not taxed under the state estate tax system. The expanded gift tax rules also include gifts to grandchildren since the generation-skipping tax exemption has been aligned at $5 million with the estate and gift tax exemption.

What are the disadvantages of lifetime gifts? First, they do not receive a “step-up” in tax basis, while most inherited gifts do. Second, gifts are irrevocable so you can’t change your mind and get the gifted property back if you need it later, whereas a bequest is incomplete until you die. Finally, while property received as a gift is the separate property of the donee, unless the gift is “in trust” or in a form that limits the transferee’s rights, once gifted it can be re-gifted by the donee or intentionally converted to community property. That means that “evil” or even just “improvident” in-laws could get their hands on the gift.

What are the specific opportunities? Almost any property can be given away but the valuation rules for some types of property and some methods of gifting require discounts from the amount that would appear “at first glance” to be full value. Applying these discounts allows you to leverage the amount of your gift exemption. Under current law, all of these discounts are available but legislation that was proposed, but not passed, last year would have altered the valuation rules and repealed certain methods of gifting. That legislation will likely be re-introduced in 2011, which means that delaying taking advantage of the expanded exemption and the current valuation rules could diminish some of the potential wealth transfer opportunities that exist today. Again, these favorable gifting opportunities are fleeting and we advise swift action for those contemplating wealth transfers.