Marriage of Gift and Estate Tax
To be able to continue wisely when you are planning your estate you must have an understanding of the relevant tax laws. There are those who think that it is not fair, however acts of offering while you live or after you pass away are taxable.
The gift tax is stated to be “combined” with the federal estate tax. As a result, they both bring a 35% maximum rate as of this writing; however, this rate is scheduled to increase to 55% in 2013.
Why don’t you need to pay the gift tax each time you offer someone a birthday present or Christmas gift? This is due to the fact that there is a lifetime unified exclusion. It currently sits at $5.12 million however it is decreasing to $1 million next year.
To supply an example, let’s say that you provided $100,000 to each of your three kids next year using the life time merged exemption. Considering that it will stand at simply $1 million next year, only the first $700,000 of your estate would subsequently be able to pass to your beneficiaries before the estate tax kicks in.
It should be noted that there are some gift tax exemptions other than the lifetime exclusion. You can offer as much as $13,000 to any variety of people each year without sustaining any gift tax liability, and this does not impact your available lifetime merged exclusion.
This is a brief take a look at these two federal levies.