When you are planning your estate that shadow you see over your shoulder is the estate tax and its 55% top rate looming, so one of the primary goals is to do what you can to avoid this harsh federal levy. One way that you can transfer assets to your heirs free of the estate tax is through the giving of gifts, and when you do this you also gain the tax advantage of reducing the overall value of your estate. The government is well aware of the fact that you could give your heirs their inheritances as gifts while you are still alive, so there is a gift tax in place.
However, there are exemptions that can be utilized and if you have a creative streak you can have a lot of fun taking advantage of them. There is a $1 million lifetime gift tax exclusion, so over the course of your life you can give gifts totaling this amount free of the gift tax. Aside from this, each individual is also entitled to a $13,000 annual per-person exemption. This exemption is allowed for each taxpayer, so if you are married you and your spouse can combine your respective exemptions and give as much as $26,000 each year to as many people as you want to. So for example, if you wanted to leave an heir a quarter of a million dollars you could choose to give this person tax-free gifts of $25,000 each year for ten consecutive years.
The personal creativity enters the picture when you are deciding on the form of the gifts. You don’t have to give cash. You can surprise a loved one with a vintage Julius “Doctor J” Erving jersey from his days with the Nets, a piece of fine jewelry, or a unique sculpture. The choice is yours, and it can be a lot of fun to seize the opportunity to give very special gifts to the people that you love and gain tax efficiency while you are doing it.
- Important Subjects to Discuss with Your Estate Planning Attorney - January 23, 2023
- Planning for the Possibility of Dementia - January 20, 2023
- How to Prepare for Retirement - January 17, 2023