estate tax limits

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May 23rd, 2009 admin Leave a comment Go to comments

estate tax limits
Gift Tax (Referring to my previous ? on estate & Inheritance Tax)?

Refering to my previous subject “Estate tax and inheritance tax”, with all my online research and double confirm from one of the answerers. If my father’s total net asset is less than 1 million (With the tax exempt limit of 2 million as per 2006), there is NO Estate tax and Inheritance tax. then here’s my another question:
I know that some peoples are giving gift US12k per year to each of their hiers free of gift tax. We were thinking of doing that as well, but with what i discover from my previous question, if all the inheritance from my dad is going to be both estate and inheritance tax free, then what is the point of using the gift strategy? Or am i right that the gift strategy is only needed by those who has more than 2 millions asset?

There is a unified gift/estate tax exclusion of $2,000,000. What does that mean, that means that if you never filed (or needed to file) a gift tax return, your estate would not have to pay any estate taxes unless it was over $2,000,000. If you filed gift tax returns, then the amount of exclusion drops for every dollar of exclusion you used on the gift tax return.

Gift tax returns (Form 709) are used when you give one person more than the exclusion limit in one year. Previously, that amount has been $11,000 and before that is was $10,000. Apparently it is now $12,000. That means that if you gave a single person, say, $22,000 as a gift in one year, you would need to file a 709 and report the $10,000. You wouldn’t pay tax on it because it until you’ve reported more than $1,000,000. However, every amount reported lowers the estate exclusion. So, if you gave one person $522,000 in one year, you would have used up $500,000 of gift tax exclusion and when you die, your estate exclusion would now be only $1,500,000 ($2M – $500,000).

So you see, you can give someone more than $12,000 per year…it is just a hassle to have to do the 709. The good thing is, if your estate is over then $2,000,000, gifts of $12,000 or less will lower your estate and help avoid taxes. Of course, you can give one person $12,000 and give their wife $12,000 and their kids each $12,000 and your spouse can give them each another $12,000…all without triggering any taxes for you or the recipient. It really depends on when you want to give the money. If your estate is less than $2,000,000 then it doesn’t matter whether you give now or later.

HOWEVER, you never know what congress will do. They could lower or eliminate the estate exclusion amount at any time. If you got the cash now and want to give, GIVE!

Caveat: Everything I told you I learned in a recent tax class on Transfer of Wealth and is available to you if you do a small amount of research on www.irs.gov. But, I speak only of federal taxes, NOT STATE TAXES. You didn’t mention the state you lived in and I probably wouldn’t know anything about that state anyway, so do you own research.

My condolences on your lost loved one.

Cash Gifting thank you Cash Gifting

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