You
Can't Take It with You:
'Lifetime Gifting' Can Be an Effective Strategy
Part I of II Articles: Minimizing the Cost of Giving
When
it comes to estate analysis, many people think of it as a
way to ensure their money, property and possessions are passed
on to their loved ones and favorite charities according to
their wishes after they die. While this can certainly be a
primary goal of an estate strategy, giving property away before
one's death can also be an effective strategy. In many cases,
it may actually increase the amount that gets passed on to
family, friends and charities of choice.
An
effective estate solution typically requires actions be taken
both during one's lifetime and after. Known as lifetime gifting,
giving property away while you are still alive is one way
to reduce the amount of your estate subject to federal estate
tax. It can also have the impact of reducing administrative
expenses that might otherwise be deducted from the estate's
total value. And, if you don't mind giving up control of the
money or property, not only is it a potentially more cost
effective to "give it away," you can also have the personal
satisfaction of seeing your gifts make a positive impact on
those who receive them .
What's
in an estate?
A
brief look at how estates are taxed helps illustrate the value
of gifting. The amount of a person's estate is calculated
by adding up the value of everything he or she owned at the
time of death including assets such as cash, property, securities,
art, jewelry, collectibles and life insurance. Under current
tax law, the amount of an estate not subject to federal taxes
is called the Estate Tax Exemption. The value of an estate
that exceeds the exemption amount is taxed at 46 percent (in
2006).
In
2006, the estate tax exemption is $2,000,000, and increases
to $3,500,000 in 2009. The estate tax is repealed effective
January 2010. However, the current tax law "sunsets" which
means that without an act of Congress to prevent it, the estate
tax returns in 2011 using the 2001 exemption of $1,000,000.
Strange as it sounds, the year you die has a big impact on
the amount of taxes your estate will pay.
The
current exemption amount of $2,000,000 may seem like a large
amount of money. However, individuals who never considered
themselves wealthy while alive could leave an estate subject
to estate taxes. A sound estate strategy can help preserve
as much of the estate as possible in order to benefit the
people and charities of the individual's choice.
