Accountants and tax attorneys know some of the best ways to reduce your tax liabilities while you are still living. However, estate planning attorneys may help you simultaneously reduce your tax liabilities while you are still living and after your death. According to the federal Internal Revenue Code, the Internal Revenue Service allows you to make gifts of up to $13,000 without having you pay taxes on those gifts. Furthermore, your recipients will not have to pay federal income taxes on the value of their gifts as long as they do not exceed the federal annual limits. By making gifts while you are still living, you can simultaneously reduce your estate taxes. This means that your heirs can keep more of their inheritances.
As of 2012, each taxpayer can make a lifetime gift of up to $13,000 annually to each recipient. Through the end of 2012, you can also give a lifetime gift of up to $5 million. This $5 million exclusion is in addition to your $13,000 annual tax-free gift allowance to each recipient. By giving your loved ones gifts annually, you can avoid having to pay estate taxes in many cases. Thus, if you would like to help your beloved niece while you are still living, you can give her a cash gift of up to $13,000 each year while you are still living. If you wanted to add your beloved nephew to the list of gift recipients, you can also give him a gift of up to $13,000. The tax laws are subject to change annually so speak with your attorney or accountant about the intricacies of the federal gift tax laws.
Stephen A. Mendel, Estate Planning Attorney
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