By implementing a gifting program, an estate owner can dramatically reduce the size of the taxable estate. If an estate owner doesn't need an asset to live on, it may make sense to give the asset away, since the recipient will likely be the person who would receive the asset at death. The advantage of gifting property while living is that the appreciation in the value and income from the gifted asset is removed from the estate. However, the estate owner who gifts property must realize that once the property is gifted, the estate owner loses all benefits and control of the property.

The annual gift exclusion is currently $11,000. This amount has been indexed for cost of living adjustments starting in 1998. If a husband and wife join together to make a gift, $22,000 can be given to an unlimited number of people every year, with no gift tax consequences.

Gift recipients can be anyone. For example, parents could conceivably give away $22,000 to each child; grandparents could gift property to each child and grandchild. You can see the potential for large federal estate tax savings if a significant amount of property is gifted.

Federal Gift Tax
Congress did not repeal the federal gift tax, although it raised the lifetime gift tax exemption (the amount that may be passed to heirs without tax) to $1 million, effective in 2002. This means that a person could make a total of $1 million of gifts over his/her lifetime before owing any federal gift tax. Gifts of more than $1 million WILL be taxed, regardless of the exemption for transfers at death. Beginning in 2010, the gift tax rate will equal the highest individual income tax rate (currently 39.6% - scheduled to decrease to 35% in 2006 and later). For example, a gift of $1,500,000 in 2006 will incur gift tax of $175,000 (35% of $500,000).

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