GIFT and ESTATE TAX PLANNING

Even when estates are valued at less than the minimum federal estate tax exemption (i.e., $1,000,000 in 2011), this does not mean that the estate would be exempt from death taxes. Several states have modified their exemptions and some of them impose inheritance or estate taxes on values much lower than the Federal exemption. Therefore, planning should still be conducted to insure that the state death tax bite is minimized.

One method of reducing the taxable estate is to make gifts of assets to children and grandchildren and/or nieces and nephews. If such gifts by the donor do not exceed $12,000 per recipient then they are legally excluded from gift and estate taxation. Thus, a husband and wife with four children could jointly gift $24,000 each year to each child, or, a total of $96,000 each year to the four children.

However, a serious negative in making such transfers for gift and estate tax avoidance purposes is that they become the property of the recipient and can then be lost to third parties in the event of a divorce or a creditor's judgment.