As our readers may have heard us mention before, the end of 2012 will usher in big changes for the gift and estate tax regime. At present, taxpayers have the opportunity to pass on just over $5 million in wealth, free of estate tax. In 2013, that number is set to change back to $1 million, unless Congress takes action.
While there has been some effort to "scare" folks into acting quickly to take advantage of the tax savings, there are others who point out that all opportunity may not be lost for those who don't act before the end of the year. That said, there may be other incentives to consider giving gifts before the year's end.
Those who live in states that impose estate and/or inheritance taxes may have reason to make gifts now, since they will have more to pay than those who don't. These folks can easily cut their tax expenses by making gifts while they are alive. Twenty-two states and the District of Columbia currently impose estate and/or inheritance taxes.
For folks in this situation, taking advantage of the annual exclusion-$13,000 per year per individual-is a good option. Money given away under the annual exclusion doesn't count against one's lifetime gift and estate tax exemption.
One can also pay tuition or medical expenses directly to schools or doctors, and this is not counted against the lifetime exemption or annual exclusion amount. There are also 529 college savings plans.
Georgia does not impose a gift or inheritance tax, but it does impose an estate tax for estate of those who died before January 1, 2005. The tax is equal to the amount allowable as a credit for state death taxes, meaning that Georgia taxes can be used to reduce one's federal estate tax.
In any case, carefully gifting is an excellent way to whittle down one's estate and take advantage of estate tax savings, regardless of how federal law will change going into 2013.
Source: Forbes, "Should You Give Your Wealth To Your Grandkids Before December 31," Ashlea Ebeling, August 2, 2012