What a lot of people don’t realize about the new tax relief bill is that it is going to sunset or expire at the end of 2012. If this takes place without any new legislation being enacted, the estate tax exclusion is going to be reduced down to just $1 million, and the rate of the tax will return to the 2001 level of which could be as high as 55%. So, unless you’re certain that you are going to be passing away before the end of 2012 your estate is vulnerable if it is worth more than $1 million.
There are a number of ways to reduce the taxable value of your estate, and the optimal course of action is going to vary depending on the exact anatomy of your assets and the nature of your wishes. However, one approach that will work for everyone at least in part is to give tax-free gifts while you are still alive. The estate and gift tax are unified, so any portion of the $5 million exclusion that you use giving gifts will be deducted from your available estate tax exclusion. But, there are some additional gift tax exemptions that can be used that do not impact the unified lifetime exclusion.
Each person may give annual gifts totaling as much as $13,000 to an unlimited number of recipients free of the gift tax. In addition, you can pay the medical bills and tuition for loved ones and free of gift taxation.
If you utilize these gift tax exemptions creatively and consistently you can reduce the taxable value of your estate while passing along funds in a tax-free manner to those who would otherwise be inheriting them after you pass away.
- 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