Many people are aware of the fact that the estate tax was repealed for 2010 but it is back in force in 2011, and this would not be big news if it just came back in the same form that is was in the last time we saw it. However, the exclusion amount is going way down, and this is going to result in many more estates being potentially subject to the estate tax.
In 2009 the exclusion was $3.5 million, and this is a pretty significant number so it could be said that those of truly modest means were spared. But in 2011 the estate tax exclusion is going to be just $1 million, so the estates of everyday couples who have worked all of their lives, own a home, and have some retirement saving may well be exposed to this tax.
One way to reduce the value of your estate in an effort to avoid the estate tax is to give tax-free gifts. Of course the government knows that people could give gifts for this reason so there is a gift tax with a rate that mirrors the estate tax rate. But, there is a $1 million lifetime gift tax exclusion, so you can use this to give gifts while you are still living to gain estate tax efficiency.
In addition to this $1 million lifetime exclusion, there is also an annual exemption. Each taxpayer can give gifts of up to $13,000 each year to as many people as they want to tax-free, and these annual gifts do not count against your $1 million lifetime exclusion. It should be mentioned that if you are married, your spouse is also entitled to this $13,000 annual exemption. So between the two of you it would be possible to give gifts totaling as much as $26,000 to as many recipients as you choose to each year free of the gift tax.
- First Time Estate Planning Mistakes - March 1, 2021
- How to Confidently Choose a Nursing Home for an Elderly Parent - February 22, 2021
- Staying Current is Especially Important in the Pandemic - October 30, 2020