Gift Tax Exemption and Exclusion
For anyone with a substantial estate, the never-ending search for mechanisms to transfer
those estate assets without incurring estate taxes should include the use of both the gift
tax exemption and the yearly gift tax exclusion. With estate taxes typically running at 35
percent or more, any tactic that can be employed in the estate planning arsenal to avoid
the payment of estate taxes should be considered.
Gift taxes can often be as high as estate taxes. With that in mind, gifting must be done
with care and planning in order to avoid incurring gift taxes. The lifetime gift tax
exclusion allows each person to gift a specific amount during his or her lifetime without
incurring gift taxes. The gift tax lifetime exemption amount is set at $5 million as of
2011; however, the limit is subject to change each year. The lifetime exemption is
cumulative and applies to gifts made to anyone during your lifetime. Gifts that you wish
to be included in the lifetime exemption must be completed prior to death in order to
qualify. For example, if you wish to make a deathbed gift of a family heirloom, make
sure the person actually takes possession of the gift before you die in order to avoid a
challenge by the IRS.
Not surprisingly, there is an exception to the lifetime exclusion limit. In this case,
however, the exception actually works to your benefit. The exception is known as the
yearly gift exclusion. The yearly exclusion allows each person to makes gifts up to the
exclusion limit -- $13,000 as of 2011, but subject to change -- to as many people as he or
she wishes during the year. For example, you may wish to give each of your three
children gifts totaling $13,000 this year. Your spouse may do the same, allowing the two
of you to gift $78,000 free of gift taxes and without counting those gifts toward your
lifetime exemption total.
Imagine further that you give those gifts for ten years, for a total gift amount of $780,000.
You may then gift $5 million to your children (or anyone else) free of gift and estate
taxes. At the current estate tax rate, that amount to a tax savings of $2,023,000 -- a
substantial amount by anyone’s standards.
Experienced estate planning attorneys Atlanta GA of the Pyke & Associates P.C. offers
estate planning and business planning resources to residents of Atlanta GA. To learn
more about these free resources, please visit http://www.cpyke.com today.