To trim your taxable estate, you can make unlimited gifts to a spouse and to charity. Also, an annual gift tax exclusion allows you to make other transfers, tax-free. Currently, the exclusion is $12,000 per recipient per year.
Married couples can give away up to $24,000 per recipient, in 2007. Thus, if you and your spouse have three children, you can give them up to $72,000 worth of assets each year ($24,000 to each child), free of gift tax.
Suppose you and your spouse give $30,000 to your son this year. Of that $30,000, the first $24,000 is covered by the annual gift tax exclusion but the other $6,000 must be reported on a gift tax return, IRS Form 709.
Fortunately, each taxpayer is entitled to a $1 million lifetime gift tax exemption. As long as you and your spouse have not used your $1 million exemptions, you can report $6,000 in taxable gifts but not pay any tax. However, the taxable gifts you report will reduce your future estate tax exemptions.