5 myths about gift tax laws
Myth No. 3: If you don't give it, Uncle Sam gets it
Not necessarily, says Cabaniss.
"People used to be encouraged to gift for estate-planning reasons," she says. That's because amounts in an estate that exceeded $1 million were subject to estate tax, which often exceeded 40 percent, says Cabaniss.
The rules have changed repeatedly over the past decade. But here's how it now stands: Whatever you don't use of the $5 million lifetime gift exemption counts toward the estate tax exemption. Because the gift tax and estate tax exemptions are tied together for a total of $5 million, it's called a "unified credit."
"There are a lot of people with estates of less than $5 million, and they don't need to be encouraged to gift for estate tax (purposes)," Cabaniss says. "It puts a whole different spin on the reason for gifting."
One caveat: The new $5 million estate tax exemption and 35 percent estate tax rate are in place until the end of 2012. And no one knows what will happen after that, Cabaniss says. So whatever estate plans you make, it pays to revisit them annually.