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Using Lifetime Gifts to Shift Assets Out of Estates

Congress recently raised the lifetime gift tax exemption from $1 million to $5 million, or $10 million for married couples. This higher exemption amount provides an incentive for some people to give away their money in their lifetimes, rather than waiting until after they are gone.

Not only does lifetime giving offer the emotional benefit of seeing how the money is used during the grantor’s lifetime, it also enables the grantor to shift assets out of his or her estate tax-free.

Increased Exemptions, Increased Ability to Shield Assets From Taxes

Following a year with no federal estate taxes for people who passed away in 2010, the federal estate tax was set to be reinstated in 2011 with an exemption amount of $1 million for individuals or $2 million for married couples. However, Congress instead raised the exemption amount to $5 million, or $10 million for married couples. The generation-skipping tax exclusion has also been set at $5 million, an amount that leaves significant room for appreciation growth over time.

People with larger estates, especially those that exceed the estate tax thresholds, now have the ability to shield more of their estate from taxes by establishing trusts or other forms of gifting during their lifetimes. Same-sex and unmarried couples may also use this opportunity to shift assets.

The gift-tax exemption is separate from the gift-tax exclusion, which allows annual gifting tax-free up to a certain amount. For 2011 the gift-tax exclusion is set at a maximum of $13,000 per person.

The exemption thresholds will remain in effect through 2012, and it is unclear what will happen for 2013. People with questions about the advantages of gifting during and after their lifetimes should speak with an experienced estate planning attorney.