Gift and Estate Tax Planning

Congratulations you have been successful and have a large sum of assets. You have now entered the final stage in financial planning known as Estate Planning. It has 2 components, Gift Tax and Estate Tax reduction.

This is a very complicated topic that requires legal guidance. The blog will give an overview to get you on the road. You can avoid paying as much in taxes by taking a few steps.

TAX RATES

The Unified Federal Estate and Gift Tax Rates (1977 - 2009) for Taxable Transfers:

$1,000,000 - $1,250,000 = 41%
$1,250,000 - $1,500,000 = 43%
$1,500,000 - $2,000,000 = 45%

GIFT TAX EXEMPTION LIMIT

The gift tax exemption limit is $1,000,000. An amount less than $1,000,000 is not taxed. Gifts given to a recipient in a year worth less than $12,000 per person or $24,000 per couple are not reported and do not count toward this limit. Amounts above this limit must be reported and counted toward this exemption limit on IRS Form 709.

ESTATE TAX EXEMPTION LIMIT

For 2008, the estate tax exemption limit is $2,000,000. This limit increases to $3,500,000 for 2009. In 2010, the estate tax is repealed.

What happens to the exemption limit in 2011 and beyond? The answer is unknown. My belief is that given the current political environment that it could easily be reduced and could go back to the $1,000,000 level.

If the estate tax is repealed then no planning is required. If the exemption limit is reduced to $1,000,000, in an effort to raise taxes revenue and reduce the national debt, a considerable amount of planning may be requred. My strategy is to plan for the $1,000,000 limit and hope that the tax gets repealed.

Future blogs will discuss gift and estate tax reduction strategies.