You have to concern yourself with the potential ravages of the estate tax if you have enjoyed a particular amount of financial success throughout your life.
Everyone in all 50 states has the federal estate tax to contend with, and it carries a 40% top rate in 2013. There is also the Connecticut state estate tax to consider, and in 2013 it is applied to the resources that you leave behind exceeding $2 million.
It makes sense to consider giving gifts while you are still alive to people who would otherwise be inheriting these resources someday in an effort to stay within the estate tax exemption. You can do this, but on the federal level the estate tax is unified with the gift tax.
What this means is that you could give gifts totaling the unified exclusion amount (it is $5.25 million in 2013) during your life tax-free. However, if you did this the entirety of your estate would be taxable.
There are however some additional exemptions available to you. One of them is the annual gift tax exemption.
This year you can give as much as $14,000 in gifts to any number of people without incurring any gift tax responsibility. Gifts given utilizing this annual exemption do not count toward your lifetime unified exclusion.
Let’s say you are married and you have one married child and three grandchildren. That is five people that you can give as much as $14,000 to in 2014, and both you and your spouse could gift this sum to the five family members.
That’s $140,000 that you could transfer in a totally tax-free manner this year.
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