We assist our clients in estate and gift tax planning so that the client’s heirs and not the government, get the major portion of their hard-earned money.
Over the coming years, the tax law gradually reduces estate and gift tax rates, and the exemption amount increases (to $1.5 million in 2004 and 2005, and to $2 million in 2006-2008). The estate tax will be repealed in 2010, but the gift tax will be retained. Ironically, the estate tax will be reinstated in 2011 unless Congress acts to make changes once again. In the midst of these phase-in and phase-out provisions, a little planning can save thousands of dollars.
Most clients are not aware what their estate is worth. If the total value of your assets and life insurance is more than the exemption limit, planning is essential. We can help in effective estate planning ideas that can also cut your current income tax bill.
Some planning possibilities:
Current tax law allows you to give away up to $11,000 per year per recipient (this amount is adjusted annually for inflation). Your spouse may join in the gift even if he or she is not an owner in the transferred asset. This means that you could transfer up to $22,000 per year to each of your heirs (without having to file a gift tax return). To double the annual exclusion yet again, you may want to include spouses of your children. The person receiving the gift does not need to be related to you. These annual gifts do not reduce your once-in-a-lifetime estate tax exclusion.
You can make unlimited gifts to pay for another individual’s medical expenses or school tuition as long as your payments are made directly to the institution.
If you have property which is not needed for your retirement, maybe it is a candidate for transferring during your lifetime. If it is a large income-producer, the future income will be taxed to the new owner and not to you, plus the property will be out of your estate.
You can generally make unlimited transfers to your spouse either during your lifetime or through your estate. There are generally no taxes on spousal transfers, regardless of size. But leaving everything to your spouse may not be a good idea, since doing so fails to utilize the lifetime exclusion amount in the estate of the first spouse to die. Planning will allow you to use the exclusion in both estates, and you’ll be able to transfer twice as much to your heirs free of estate tax.
With proper planning, certain life insurance proceeds can be kept out of your estate.