Once you recognize the fact that the value of your estate is going to exceed the estate tax exclusion amount one of your primary goals is going to be to gain tax efficiency. This can be done by situating your assets in an intelligent manner and by transferring assets while you are still alive without incurring any tax liability. As we have previously covered in this space tax-free gift giving is a way to pass assets to your heirs in a tax-free manner while reducing the taxable value of your estate in the process.
To review, there is a lifetime gift tax exclusion of $1 million, but the gift and the estate tax are unified, so if you used up this exemption giving gifts your estate tax exclusion would be gone now that it stands at $1 million in 2011. You can however give annual tax-free gifts of as much as $13,000 per person, so for example you could give your daughter, her husband, and their two children $13,000 each in any given year. Your spouse could do the same, so you can see how these gifts could add up and go a long way toward bringing the overall value of your estate under the exclusion. If you can achieve that, your estate will have passed to your heirs in a completely tax-free manner.
This has all been mentioned previously, but what we would like to highlight here is the medical gift exemption. You are entitled to pay the medical expenses of an unlimited number of people equaling any amount free of the gift tax. Should a family member be responsible for some health care bills this can be put to good use. But in addition, you can use this exemption to pay for all or some the nursing home or assisted living facility costs of a loved one under some circumstances, and it can also be used to pay for health insurance, including some long-term care insurance.
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