When you are planning for the future with the well being of your loved ones in mind one of the things that you must address is the massive bite of the estate taxOne of the reasons why many people think that this tax is unjust is because not everyone has to pay it.
At the present time, the estate tax exclusion is $5 million so only the portion of your estate that exceeds this amount is subject to the tax. But, when the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 sunsets at the end of 2012 the exclusion is scheduled to be reduced to $1 million.
Over 8.4 million American households have assets that exceed $1 million, and this excludes the value of their primary places of residence. So if there are no changes to the existing laws in the meantime, a lot of estates are going to be subject to the estate tax in 2013. And to make matters worse, at that time the top rate is scheduled to increase from 35% to 55%.
One way that you can reduce the value of your estate for estate tax purposes while transferring assets to those who would be inheriting them is through the giving of gifts. There is a gift tax in place, but there are exemptions. One of them allows each person to give gifts of up to $13,000 each year to an unlimited number of recipients equaling any amount of money in total.
Since this is a per-person exemption if you are married you and your spouse could give gifts of up to $26,000 each to as many people as you want to. To take it a step further, you could give this $26,000 to a child and his or her spouse, making it possible to provide this husband and wife with $52,000 annually in a tax-free manner.
ABOUT THE AUTHOR: Gary Hicks
Experienced estate planning attorneys of the Ryan Hicks Cumpton & Cumpton LLP offer estate planning and business planning resources to residents of Mobile AL.