When you hear that the estate tax is poised to take 35% of the taxable part of your estate you may get to thinking of offering presents to your loved ones while you are still alive.
This is an extremely logical approach, however the powers that be are aware of the reality that individuals might be thinking along these lines. So as a response, there is a gift tax in place that carries the very same 35% rate to dissuade people from going this route.
Now you might have heard individuals say that there is a $5 million life time gift tax exemption that permits you to provide gifts amounting to this amount without incurring any tax liability. It holds true that there is a $5 million gift tax exemption at this time as an outcome of the passage of the Tax Relief, Joblessness Insurance Reauthorization, and Job Development Act of 2010 (it used to be just $1 million for individuals). So you can certainly give gifts equating to as much as $5 million over your life time devoid of the gift tax.
However, the gift tax and the estate tax exemptions are merged. You don’t get a $5 million estate tax exclusion in addition to the $5 million gift tax exemption for an overall of $10 million. There is a $5 million integrated estate/gift tax exemption. So, if you were to provide presents worth an overall of $5 million over the course of your life utilizing the gift tax exemption, all of your estate would be subject to the estate tax.
Of course this is a per-person exemption of $5 million. Among the arrangements contained in this tax act that was passed at the end of in 2015 permits for the mobility of the combined estate/gift tax exemption. Now, when you pass away your making it through spouse may utilize your exemption as well as his or her own. Provided this truth, couples do have a $10 million cushion to use at the present time.