When you give someone a gift you are aware of the fact that you are giving away something that has value and it costs you something to engage in this act of generosity. This is the essence of gift giving, a selfless act of divesting yourself of something that you own for the benefit of someone that you care about.
The above is all good, but what you may not bargain for is the tax man taking advantage of this opportunity as well.
If you give gifts that exceed a certain amount they are subject to the federal gift tax. The gift tax exemption is unified with the estate tax exclusion. Right now this unified exclusion is $5.12 million, but it is scheduled to be reduced to just $1 million at the beginning of 2013.
So if you were to give gifts totaling $1 million next year, your entire estate and any future gifts that you give while you are still alive would be subject to a tax. This levy will be carrying a 55% rate in 2013 unless changes to existing laws are made between now and then.
The above is not good news, but there are some gift tax exemptions that can be utilized that are separate from the unified lifetime gift/estate tax exclusion. One of them allows you to give as much as $13,000 to an unlimited number of people every year free of the gift tax. You can also pay the medical expenses and school tuition of others as a gift free of the gift tax.
Given the intricacies of the tax code expert advice is needed when you are planning your estate. To obtain the professional guidance that you need to optimally position your assets take action right now to arrange for a consultation with a good Somerset County estate planning lawyer.