A large part of estate planning involves making sure that your assets stay intact when it is time for them to be passed along to your heirs. The fact is that if the value of your estate does not exceed the estate tax exclusion, there isn’t much there to erode it other than the costs associated with probate. And for that matter, even probate costs can be minimal depending on the size and complexity of your estate. But if your estate does exceed the exclusion it is very important to situate your assets intelligently to gain estate tax efficiency because of its enormous rate, which is going to top out at 55% in 2011.
One way that you can reduce the value of your estate in an effort to keep its overall value under the exclusion is to give tax-free gifts to your loved ones while you are still alive. Many people are aware of this strategy and we have looked at it here previously, but there is a gift-tax exemption that a lot of people are not aware of that can be used to great advantage. Each taxpayer can pay the medical expenses of an unlimited number of people free of the gift tax, and there is no limit to the amount that you can pay in behalf of the recipient. It should be noted that you do have to pay the health care provider directly rather than giving the gift directly to the recipient.
These gifts can cover any type of necessary diagnoses and treatments. So if you need to shave some off the value off your estate you can stand at the ready to help your heirs with any medical bills that may arise. But in addition to this you can also pay for the health insurance of as many people as you want to, including long-term care insurance totally tax-free, and these can be very significant and valuable gifts.
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