Annual Gift Tax Exclusion
Annual Gift Tax Exclusion
If you do not want to pay too much estate tax and you want to ensure that your assets will stay within your family, the best thing to do is to give certain amounts of money to your children or grandchildren. The annual gift tax exclusion makes it possible for you to give money to any number of people without having to pay gift or estate taxes. In the years 2010 and 2011, the amount of money needed to be gifted in order to be eligible for annual gift tax exclusion is $13,000.
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•Gift Tax Return Form 709
By giving annual money gifts to your children or grandchildren, you can remove certain assets in your estate and eliminate the likelihood that they will appreciate and become a more significant part of your taxable estate. As such, you can significantly reduce your exposure to estate taxes in the future. You can give $13,000 to each of your children as well as their spouses and children annually. If you have a big family, you can make more than 10 exclusion gifts totaling more than $130,000 every year, without using unified credit. You can also split the gifts with your spouse to double the amount of money given. By doing so, you can actually transfer a lot more money annually without incurring gift tax liability.
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If you are uncertain whether you should leave large sums of money in the hands of minors, you can consider giving money to your children or grandchildren through Uniform Transfers to Minor Act accounts. Your children and grandchildren will be regarded as owners of the money in their accounts, and they will only have access to the money after they reach the age of majority, which can be 18 to 21 depending on the state. While they are still minors, their money will be held and managed by a custodian. You should make sure that you or your spouse is not named as a custodian, because the account will become a part of your taxable estate if you pass away while you are assuming control over it.
One thing you have to know is that you can only obtain annual donee exclusion if the money gift that you are giving is of a “present interest”, and not “future interest”. With this in mind, you have to make special planning considerations when you are offering money gifts to minors. However, there is a way to avoid these obstacles, and that is to use a trust.
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Under the existing law, the estate tax exclusion volume is not the identical as the life time gift tax exclusion quantity. In the many years 2010 and 2011, all money gifts that are below the annual exclusion sum of $13,000 will be regarded as gifts that are topic to tax. The lifetime gift tax exclusion makes it possible for you to give money gifts amounting to $1 million around your lifetime, with out getting to pay federal gift taxes. In the event that a man or woman passes away following supplying absent $one million really worth of taxable presents for the duration of the training course of his or her existence, none of his or her belongings will be excluded from estate taxes. The exclusion quantity has to apply to life time presents initial, and then transfers at death
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