Direct Approach To Inheritance Planning

As has been widely reported the estate tax exclusion was raised to $5 million as a result of the passage of the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010. It had previously been $3.5 million in 2009, and after the temporary repeal of 2010 it would have been reduced all the way down to $1 million had the Bush tax cuts been allowed to sunset without any new legislation having been passed.

This is all well and good, but if the overall value of your estate exceeds $5 million you have to take action to avoid the 35% federal death tax. There are a number of different estate planning tools that can be used to accomplish this, and the optimal vehicles to utilize vary depending on the specific nature of your assets. But there is one very direct way to transfer assets to your loved ones free of taxation that is useful for just about everyone: the practice of giving gifts in a tax-free manner while you are still alive.

The lifetime gift tax exemption was raised to $5 million when the new tax relief bill was passed, but it is unified with the estate tax exclusion. So for example, if you were to give tax-free gifts totaling $3 million throughout your life using the unified exemption only the first $2 million of your estate would pass to your heirs free of the estate tax. As a result giving gifts using the lifetime exemption does not provide you with estate tax efficiency.

However, there is a $13,000 per person annual gift tax exemption that can be utilized, and these gifts do not count against your unified gift/estate tax exclusion. If you’re married you and your spouse can combine your respective exemptions and give as much is $26,000 per year to an unlimited number of recipients totally free of taxation. If you plan ahead and give these gifts to your heirs over a sustained period of time you can reduce the taxable value of your estate while gaining the heartfelt satisfaction that goes along with giving a gift to someone you love.

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Alan Augulis, Estate Planning Attorney

Mr. Augulis founded his Warren, New Jersey law firm so that he could focus his practice in the areas of advanced estate planning and tax law. Mr. Augulis has invested considerable time and energy helping to educate others on the topic of estate planning and has become a sought-after speaker in the tax and estate planning arena because of his informative and entertaining seminars.

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