Higher Gift Level Helps Reduce Taxes

Federal tax laws offer you many opportunities to reduce, possibly even eliminate, any taxes you may owe upon death. Your lawyer can inform you of options for your particular situation.

One way to reduce your estate to below the federal taxable level, which is currently $1.5 million and will go up to $2 million for the years 2006, 2007, and 2008, is to make cash gifts while you are still alive (the technical name for such gifts is "inter vivos"). For 2005, the upper limit on these gifts is $11,000. As of January 1, 2006 this amount will go up, and you will be able to give an unlimited number of $12,000 gifts each year.

You can give the gifts to as many people as you want. As long as your annual gift to each person is at or under $11,000, or $12,000 if the gift is made after December 31, 2005, the gifts are tax free (you can give $22,000, or $24,000 if the gift is made after December 31, 2005, in tax free gifts to each person if you give as a couple). The recipients do not have to be related to you. You can also make gifts to trusts and to charities. If you give to a charity, you can give an unlimited amount of money tax free.

In addition to gifts being a potential tax-saving device, such gifts may help make an estate small enough to avoid a full-fledged probate. Another advantage of giving property away before you die - you get to see the recipient enjoy your generosity.