Retirement & Financial Planning Report

The federal estate tax has been repealed for deaths occurring in 2010 and there’s no knowing if or when it will be reinstated. Similarly, the generation-skipping transfer (GST) tax is currently not in effect.

However, the federal gift tax still applies. The rules for 2010: 

* The annual exclusion is $13,000 per recipient this year. You can give away up to $13,000 to any number of people and not even file a gift tax return.

* The lifetime exemption is $1 million per giver. If you give away $25,000 to your daughter Mary, for example, $13,000 is sheltered by the annual exclusion but the other $12,000 comes out of your lifetime exemption. You won’t owe tax on the first $1 million of such gifts but they do reduce your future estate tax shelter.

* Gifts in excess of the annual exclusion and lifetime exemption are taxed at a 35 percent rate.

If you are concerned you’ll owe estate tax in the future, it makes sense to use the annual exclusion this year, giving away assets you won’t need and thus reducing the size of your taxable estate.