Tis the season for estate planning. While it would seem that the holidays would not be the ideal time to discuss an estate plan and estate taxes, it is the end of the year and there is time to consider a gift that can further your estate plan.
In 2010, due to the lapse in the federal estate tax provisions, you are permitted to gift up to $13,000 to any one person without paying gift taxes and without impacting your $1 million lifetime gift exemption. Gifts of over $13,000 will be taxed at the current gift tax rate of 35%, which increases to 55% on January 1, 2011.
So what is permitted to be gifted under estate tax guidelines? A gift is property, and this includes cash, or the use of income from property, without expecting to receive something in return. This means if you sell something at less than its full value, or if you make an interest-free loan, you may be making a gift.
The IRS works under the general rule that any gift is a taxable gift; but, there are many exceptions to this rule. Generally, the following gifts are not considered taxable:
- Gifts, excluding gifts of future interests, that are not more than the annual exclusion for the calendar year,
- Tuition or medical expenses you pay directly to a medical or educational institution for someone,
- Gifts to your spouse,
- Gifts to a political organization for its use, and
- Gifts to charities.
Obviously using gifting as part of an estate plan can be complex, and also have an impact on other aspects of estate planning, such as Medicaid planning. Therefore, it is important that you work with a qualified estate planning lawyer to ensure that gifting will further your overall estate planning goals.
- Business Succession Planning May Be Easier than You Think - June 1, 2022
- Estate Planning – Something You Shouldn’t Do Yourself - May 18, 2022
- Just When You Thought You Understood the 10-Year Rule, Think Again - May 11, 2022