Marriage of Gift and Estate Tax
To be able to proceed intelligently when you are planning your estate you need to have an understanding of the relevant tax laws. There are those who think that it is unfair, but acts of offering while you are alive 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 do not you need to pay the gift tax whenever you provide someone a birthday present or Christmas gift? This is since there is a lifetime merged exemption. It currently sits at $5.12 million however it is decreasing to $1 million next year.
To offer an example, let’s say that you gave $100,000 to each of your 3 children next year using the lifetime merged exemption. Considering that it will stand at just $1 million next year, just the very first $700,000 of your estate would consequently have the ability to pass to your heirs before the estate tax kicks in.
It needs to be kept in mind that there are some gift tax exemptions aside from the lifetime exemption. You can give as much as $13,000 to any variety of individuals each year without incurring any gift tax liability, and this does not impact your readily available life time merged exclusion.
This is a brief appearance at these 2 federal levies.