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Anyone who has a substantial estate knows that avoiding estate taxes is one of the primary goals of estate planning.
How to Use the Gift Tax Exemption and Exclusion Anyone who has a substantial estate knows that avoiding estate taxes is one of the primary goals of estate planning. The estate tax rate changes on a regular basis; however, it is typically high, meaning an estate could lose as much as half of its value to taxes. One option for avoiding estate taxes is to gift assets to family members and loved ones during your lifetime. While gifting can avoid estate taxes, you could incur gift taxes if you do not plan your gifts to take advantage of the lifetime gift exemption and the yearly gift exclusion. Each person is entitled to a lifetime exemption on gifts up to the lifetime gift exemption limit. The limit is subject to change. As of 2011, the lifetime gift exemption amount is at an all time high of $5 million. Under the lifetime exemption rules, you may gift assets totaling $5million to anyone you want during your lifetime without paying gift taxes. The lifetime gift exemption is cumulative, meaning all gifts you made during your lifetime apply. In order to qualify under the exemption, gifts must be completed prior to death. All gifts that qualify under the lifetime exemption are not considered part of your estate at death since the asset has been transferred out of your estate, meaning the gifts will not incur estate taxes upon your death. The yearly gift exclusion is essentially an exception to the lifetime gift exemption limit. The yearly exclusion allows each taxpayer to make gifts up to the yearly limit -- $13,000 in 2011 -- to as many people as he or she wishes. In other words, you can gift up to $13,000 to everyone you know, if you choose, each year free from gift taxes. The exclusion can also be used by your spouse or partner, in effect doubling the exclusion. Imagine, for example, that you have two children and four grandchildren to whom you wish to transfer assets. You and your spouse, or partner, can give a combined total of $26,000 each year to all six people for a yearly total of $156,000. Over the course of ten years, this allows you to shift $1.56 million free of gift taxes and without using any of your $5 million lifetime gift exemption. Experienced estate planning attorneys Worcester MA of the Law Offices of James A. Miller estate planning and business planning resources to residents of Worcester MA. To learn more about these free resources, please visit www.worcester-estate-planning.com/ today.
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