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Working gifting into your estate plan

Gifting can be an important part of an overall estate plan, but it is important for people to realize that there are certain rules surrounding gifting, if one wishes to avoid unnecessary taxation. One of the most important rules is that gifts can count against one’s overall estate tax exclusion amount. Granted, that amount is high (5.25 million in 2013 and set to rise to 5.34 million in 2014), but for those with a significant amount of wealth, it can be used up quickly.

Those who exceed their exclusion amount could end up owing as much as 40 percent tax on what exceeds it. Then there is the annual exclusion for gifts. Without paying attention to these limits, one can face unwanted taxes. The following are some ways to take advantage of these limits and avoid taxes. 

One way to avoid unwanted gift tax is to work in annual gifts, up to $14,000 per year for individuals and $28,000 for couples. Making use of the annual exclusion can ensure that loved ones receive gifts and one’s estate assets are reduced. Good records of annual gifts should be kept. It should be borne in mind that gifts exceeding the annual exclusion will reduce the lifetime exclusion.

In addition to annual gifts, one may contribute to a college savings plan up to the annual exclusion amount or pay for medical/dental expenses for anyone in an unlimited amount.

Another option, for those who gave large gifts in 2012, is to “top off” those gifts to meet the updated lifetime exclusion amount, set to increase $130,000 in 2014. This option does not apply to many people, but is available nevertheless.

Other gifting options do exist, but whatever options one selects for gifting, it is important that they fit in with an overall estate plan.

Source: Forbes, “The 2013 Limits On Tax-Free Gifts: What You Need To Know,” Deborah L. Jacobs, November 1, 2013. 

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