Over your lifetime, you have accumulated assets and wealth. Perhaps more than enough to spend while you are alive. You have planned to distribute your wealth to family or beneficiaries when the time comes. However, what is the best way to do this and what is the right time? It may not require waiting until you pass to distribute these gift tax exemption amounts with out a tax consequence. In recent years, the lifetime gift tax exemption has shifted along with the estate tax rates and exemptions, both of which will continue to fluctuate as Congress debates yearly budgets. Regardless of how the lifetime gift tax exemption changes, it is important to stay apprised of where the exemption limits are now, and to continue to monitor these limits to avoid any negative impact to current and future estate planning efforts.

Exemption Explained

The lifetime gift tax exemption sets the amount of money and other property taxpayers can give away during their lives. The amount of such assets taxpayers gift during their lives reduces how much they can give away without tax penalties after their deaths. So, the connection between the lifetime gift tax exemption and the estate tax exemption is that any gifts granted during a person’s lifetime (in excess of the annual gift tax exclusion amount) are subtracted from the estate tax exemption upon death.

Shifting Amounts

Current lifetime gift tax exemption amounts are $5 million for individuals and $10 million for married couples, which are the same limits as the estate tax exemption. These amounts, however, are not typically the same. From 2002 to 2009, the estate tax exemption increased from $1 million per individual to $3.5 million while the gift tax exemption amount remained at $1 million per individual throughout this period.

Realizing Benefits

When the lifetime gift tax exemption was set at the lower $1 million limit while the estate tax exemption amount climbed, people were encouraged to hold on to their money and other property during their lives and only give it away after they died. With the exemptions at the same levels now, there is the same incentive to offer monetary gifts during a person’s lifetime.

Legal Advice

Individuals should consult an MH estate planning attorney to plan the best strategy for their unique situation. Contact us today with your questions and concerns about the lifetime gift tax or estate tax exemptions.