As of this writing, the fate of the federal estate tax is uncertain* In 2012, only estates worth more than $5*12 million are subject to this tax* However, unless the law is changed, in 2013 the tax will impact all estates worth over $1 million*
One way to trim your estate, and reduce exposure to estate tax, is by making gifts* However, the federal gift tax limits this practice* If you make a $100,000 gift, for example, most of that gift will reduce your estate tax exemption*
Fortunately, you can give up to $13,000 of assets this year, to each recipient, and avoid gift tax* You won’t even have to file a gift tax return* Larger gifts have tax consequences, though*
Suppose Jane Mason gives $100,000 to her son Bob* The first $13,000 is covered by her annual exclusion* Jane won’t have to pay gift tax, assuming this is her first taxable gift, but the excess $87,000 requires Jane to file a gift tax return, and that $87,000 gift reduces her estate tax exemption* If Jane dies when the estate tax exemption is $1 million, for example, her exemption would be only $913,000, because of the $87,000 reported gift*
