When you are planning your estate under the current laws you have to work with fact that there is a $1 million exclusion in 2011. There is a lot of debate going on about taxes on Capitol Hill in light of the mid-term elections and it is subject to change, but the low exclusion amount is impacting a lot of estates that were not previously exposed to the estate tax. So the logical response is to reduce the value of your estate in an effort to bring its overall value below the exclusion. There are a number of ways this can be accomplished, but the one that we would like to highlight here is tax-free gift giving and the fun you can have giving gifts to your loved ones.
There is a $1 million lifetime gift tax exclusion, so you can give gifts of up to one million dollars throughout your life free of the gift tax and doing so will obviously reduce the value of your estate. In addition to the $1 million lifetime exclusion you can also give gifts worth as much as $13,000 to as many people as you want to free of the gift tax. So if you identify your heirs and do the math, you can start to distribute their inheritances to them each year while you are still alive. If you are married, your spouse is also entitled to this $13,000 per person annual exemption, so if you combine the two as a couple you can give as much as $26,000 to as many people as you want to each year tax-free.
Here’s where the fun come in: you don’t have to give cash. You can give gifts like memorabilia, a classic car, art, an expensive bottle of wine, a watch or some jewelry, whatever you choose to give completely free of the gift tax as long as the gift’s value is under the annual exclusion. It is hard to top the experience of giving a loved one a bat used by Mickey Mantle or a work of art that they will cherish forever. Get creative and turn the staid task of estate planning into an enjoyable annual event.