Wouldn’t it be nice to be able to bypass the government and leave all of your estate to your heirs? Depending upon the size of your holdings, estate taxes can take a big bite out of the total.
However, with foresight and careful planning, there are perfectly legal ways to skirt the estate tax requirements without breaking any laws.
In 2009, the laws changed to allow everyone to bestow annual gifts to friends and family of as much as $13,000, tax-free, with no strings attached whatsoever. There is no limit to the number of gifts that can be given, but each must be to a different individual.
Married spouses can double their yearly gift tax amount, meaning that parents could gift each child annually with a $26,000 non-taxable windfall. Should Mom want to give that amount but Dad balk, under the Internal Revenue Code, the assumption is that the gift comes jointly from both spouses, keeping the higher limit of $26,000.
It gets even better if the gift is given to your spouse, who is a legal American citizen. Under the law, no limits are placed on gifts to spouses, which are also tax-exempt.
Timing can be key in these matters. Remember, it’s based on a calendar year, so if your daughter is buying a house around the first of the year, consider gifting her with $13,000 at Christmas, and then following up with a nice New Year’s bonus of another $13,000. That way she will have a nice nest egg to use as a deposit on her new home.
These rules do not just apply to cash gifts, but also to real estate, personal property, bonds, stocks and other valuable items.
It’s always a good idea to check with an estate planning attorney to make sure that all transfers are done legally within the parameters of the law to avoid any problems later on.
Source: Findlaw, “Reducing Estate Tax – Gifts,” accessed Dec. 09, 2016