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Home / Estate Planning / Direct Tax Efficiency, Asset Protection Strategy

Direct Tax Efficiency, Asset Protection Strategy

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There were those who were relieved to see the estate tax exclusion raised to $5 million via the passage of the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010, and any tax relief is better than no tax relief. But if your estate is worth more than $5 million it is still going to be subject to a 35% federal death levy, so you have to look for ways to gain estate tax efficiency. One of these is the practice of tax-free gift giving.

Prior to the passage of this new act the lifetime gift tax exclusion was $1 million, but it has now been raised to $5 million. Giving gifts using this exemption may seem like a great way to gain estate tax efficiency, but unfortunately it doesn’t work that way thanks to the IRS. The gift tax exemption and estate tax exclusion are unified, so if you were to use $3 million of your lifetime gift tax exemption giving gifts to your loved ones while you are still alive only the first $2 million of your estate would be exempt from the estate tax.

There are however a handful of gift tax exemptions that do not impact the lifetime unified exemption, and one of these involves annual tax-free gift giving. Each person is allowed to give a maximum of $13,000 as a tax-free gift each year to an unlimited number of recipients. Since this is a per-person exemption, if you’re married you and your spouse could combine your respective exemptions and give gifts totaling as much as $26,000 annually. To take this a step further as individuals you can each give one of your children and his or her spouse $13,000, enabling the tax-free transfer of $52,000 to each married child.

Stringing together these tax-free gifts over a number of years can reduce the taxable value of your estate significantly, and it is also a good way to protect assets from potential claimants should this be a factor that is relevant to your planning efforts.

Paul Gantner
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About Paul Gantner

I am an owner of Amen, Gantner & Capriano, Your Estate Matters, L.L.C. I have been able to bring my business and legal education and experience into a firm that has for many years provided comprehensive estate plans that meet clients’ needs and expectations. My passion has been creating and constantly pushing AGC’s mission of “Helping Families Secure their Legacies by Embracing them into the Law Firm Family through Long-term, Personal Advisory Relationships.”