We all know in the back of our minds that giving gifts is perhaps more rewarding for the giver than the recipient, but when you actually have that experience once again it really hits home. It is interesting to take this into consideration when you are engaged in the process of estate planning, because after all, your legacy is in essence a final gift to the ones that you love the most. Unfortunately, it is the type of gift giving that you don’t get to actively participate in.
If you want to experience the act of providing your loved with inheritances, one option would be to give gifts while you are still alive, and there are tax advantages inherent in doing so. The portion of your estate that exceeds the estate tax exclusion threshold is subject to a 35% federal levy at this time, and that threshold stands at $5 million. But the estate tax exclusion is going down to just $1 million in 2013 and the rate of the tax is rising to 55%. So unless there are changes made in existing laws between now and then the IRS will take over half of the portion of your estate that exceeds $1 million.
This being the case, why not give gifts while you are still alive to shave down the taxable portion of your estate? There is a gift tax of course, but there are exemptions. One of them allows for the gifting of as much as $13,000 per recipient each year, and there is no limit to the total dollar amount or number of gift recipients. Since this exemption is allotted to each individual taxpayer, if you are married you and your husband or wife could combine your respective exemptions and give a total of $26,000 each year to any number of people in a completely tax-free manner.