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Estate Tax Changes to Take Advantage of Now

by Neal Frankle, CFP ®, The article represents the author's opinion. This post may contain affiliate links. Please read our disclosure for more info.

There have been a number of estate tax changes that make it easier to save money now and in the future. This is because there was a huge gift tax exemption passed that allows you to transfer up to $5 million when you die without paying any estate tax.

But you don’t even have to die in order to give away all your loot. You can gift the money while you’re alive and still not have to pay Uncle Sam a penny as long as you transfer less than $5 million.

Now, this law only applies for 2011 and 2012, so draw your own conclusions. If it were me, and I was rolling in dough, I’d take advantage and start giving right now while the giving is good – assuming you have enough money to retire and don’t need the money.

If you do that and the estate tax is reinstated later, you still benefit. Your estate will be smaller and you’ll need less life insurance – an immediate savings.

Another way to reduce your estate is by giving your beneficiaries smaller amounts (up to $13,000 per person) each year while you are alive. So if you and your husband decide to give money to your daughter, she can receive $26,000 a year, which won’t be counted against your $5 million allowance. You can also pay for someone’s school tuition and/or medical expense without having it count towards your annual allowance of $13,000. But that only works if your payments go directly towards the school or medical provider.

Taking advantage of this high gift tax exclusion is something you should consider. If you already have a large estate, it could be gargantuan by the time you punch your ticket. $10 million today could be worth over $50 million in 25 years if you earn 6.4%. And if you are 65 today, you could easily have that time to grow your money. Give that $10 million away now and your heirs will have the full $50 million. But if you wait to give it to them, that $50 million could be hacked down to $25 million or less depending on the estate tax structure in effect at the time.

Of course, inheriting $25 million is pretty cool and I’m sure your children will be very grateful for that. But this topic isn’t really about your kids. You can give the money to a charity or anyone else for that matter. This is really an issue of control. Why not do some planning now to make sure you call the shots instead of allowing the boys and girls in D.C. to decide what to do with your dough?

And if you are concerned about giving your young Jedi too much money too soon, consider an irrevocable trust. This way, you can control how much gets doled out even after you pass away.

Are you giving money away now to take advantage of this large exclusion? If not, why not?

 

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Who is Neal Frankle

Neal Frankle

I'm a Certified Financial Planner™ with more than 25 years of experience. I feel very blessed and hope to share my personal financial experience and professional wisdom with readers of WealthPilgrim.
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