Estate Planning | Making a Difference One Family at a Time

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We have all heard it said that “giving is better than receiving,” and this is just a quaint truism when you hear the words spoken or read them in print. However, no matter how many times you’ve given a gift, when you actually have the experience of seeing the joy that the right gift brings to the recipient it is truly a meaningful experience. This is something to keep in mind when you are planning your estate, because giving gifts while you’re still alive can provide you with estate tax efficiency while you simultaneously get to enjoy the experience of giving.

Right now the estate tax exclusion is $5 million, but it is scheduled to go down to just $1 million in 2013. So, if your estate is exposed to the estate tax you will want to look for ways to reduce its value while losing nothing in the process. The first thing that is going to come to the mind of many people would be to simply give gifts to those who would be inheriting the money anyway while you are still alive. This would be great but the fact is that the powers that be have imposed a gift tax that is unified with the estate tax, and it carries the same rate. There is a $5 million gift tax exemption but it is unified with the estate tax exclusion, so using any portion of it to give tax-free gifts will only reduce your estate tax buffer.

There are however some gift tax exemptions that do not impact the unified gift/estate tax exclusion. One of these is the educational exemption, which allows you to pay the tuition directly of an unlimited number of students equaling any amount of money as a gift free of the gift tax. It should be noted that this does not include living expenses, books and fees. But, you are also entitled to give up to $13,000 tax-free each year to any number of people without impacting your unified exclusion. So you can utilize this exemption to provide your student with additional financial resources, and if you’re married you and your spouse could combine your respective exemptions to give as much is $26,000 per recipient annually.

Barry D. Horowitz, Estate Planning Attorney
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