Marriage of Gift and Estate Tax
To be able to proceed wisely when you are planning your estate you must have an understanding of the appropriate tax laws. There are those who think that it is not reasonable, but acts of offering while you live or after you pass away are taxable.
The gift tax is stated to be “combined” with the federal estate tax. As a result, they both bring a 35% optimum rate as of this writing; nevertheless, this rate is arranged to increase to 55% in 2013.
Why don’t you have to pay the gift tax whenever you provide somebody a birthday present or Christmas gift? This is because there is a lifetime combined exclusion. It currently sits at $5.12 million but it is going down to $1 million next year.
To provide an example, let’s say that you provided $100,000 to each of your three children next year utilizing the life time combined exemption. Since it will stand at simply $1 million next year, just the first $700,000 of your estate would consequently be able to pass to your successors before the estate tax kicks in.
It needs to be kept in mind that there are some gift tax exemptions aside from the lifetime exclusion. You can offer as much as $13,000 to any number of individuals each year without sustaining any gift tax liability, and this does not affect your offered life time merged exclusion.
This is a quick take a look at these two federal levies.