In 2012, the federal estate tax exemption is $5.12 million. Married couples now can use two exclusions, no matter which one dies first, so they effectively have a $10.24 million exemption. Therefore, you may not pay much attention to estate tax.
Nevertheless, there may still be reasons to make gifts that eventually will reduce your taxable estate:
* The current federal estate tax exemptions may be reduced. President Obama has proposed lowering the exemption to $3.5 million in 2013, while even lower levels are possible.
* Many states have their own estate tax, with lower exemptions. Several states impose tax on estates larger than $1 million. Thus, an estate might be exempt from federal estate tax yet still owe hundreds of thousands of dollars in state estate tax.
If you are concerned about possible estate tax, you can make tax-free gifts using the $13,000 annual gift tax exclusion now in effect. With this exclusion, you can give up to $13,000 worth of assets to any number of recipients. If you’re married, your spouse can do the same. You won’t even have to file a gift tax return.
On the other hand, gifts over $13,000 this year require a gift tax return to be filed. If you want to avoid this hassle (and probably a fee to someone who’ll prepare it for you), try to keep any gifts this year to less than $13,000 per recipient.
