Higher limits for tax-free gifts can help you lower the estate tax your heirs will pay.
In December 2010, the U.S. Congress voted to raise the tax threshold for lifetime gifts from $1 million to $5 million. As a result, individuals were able to make an additional $4 million in gifts without incurring a 35 percent tax. While the law was supposed to be temporary – the planned end date was December 2012 – many taxpayers took advantage of the raised limit in 2011 and 2012. In fact, recent data from the IRS showed that $122 billion in tax-free gifts was reported in 2012, four times what was reported in 2011 and 2010.
However, instead of returning the threshold to its original level, Congress voted to make the higher limit permanent, with the amount adjusting for inflation each year. The limit for 2014, adjusted for inflation, is $5.34 million.
While lifetime gifts are a viable means of passing on your estate to your heirs with lower tax liability, you should also know that there is an annual exclusion of $14,000 that applies in addition to the lifetime exclusion. This means you may give up to $14,000 to as many individuals as you wish without reducing your lifetime gift and estate exemption in 2014.
For more information on effective estate planning strategies, speak with a representative at LaPorte.