If your estate is exposed to the estate tax it will be necessary to take steps to gain estate tax efficiency unless you are willing to concede an enormous chunk of your legacy to the IRS. At the present time the estate tax is carrying a 35% maximum rate, and the exclusion is set at $5 million. But if the presently existing laws remain intact, that rate is going up to 55% in 2013. And, many more estates will be exposed to the tax because the exclusion threshold is being reduced to just $1 million.
So, if you plan on living beyond the end of next year you are looking at a $1 million exclusion. If your estate is worth more than this you need to take action, and one thing that you may want to consider is the practice of tax-free gift giving.
The estate tax and the gift tax are unified, so that aforementioned $5 million exclusion that is in place between now and the end of next year includes the gifts that you give while you are living and your estate. But, there are some additional gift tax exemptions that you can take advantage of without impacting the lifetime unified exclusion that will be available to apply to the transfer of your legacy to your heirs.
One of these allows for giving gifts of as much as $13,000 per year to any number of gift recipients. If you are married, you and your spouse could pool your respective exemptions and up that number to $26,000. Should you have a married child, for example, you could choose to give both this person and his or her spouse up to $26,000 each year, for an annual tax-free transfer of as much as $52,000.
To learn more about how measured gift giving can provide you with estate tax efficiency, simply arrange for a consultation with an experienced estate planning attorney.