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For another year, the gift tax rate favors wealthy taxpayers who want to reduce their estate and at the same time make a financial gift.
For the remainder of 2011 and through 2012, individuals can give up to $13,000 to as many recipients as they'd like without owing gift taxes. Unlimited financial gifts can be bestowed for tuition or medical costs if paid directly to the educational institution or medical provider.
The applicable exclusion amount -- or the amount you can shelter from gift taxes over your lifetime -- will be $5.12 million per individual in 2012 (up from $5 million in 2011). But whatever you apply toward the applicable exclusion for gifts means you'll have less to apply toward estate taxes at your death. So depending on your situation, it's better to make gifts of $13,000 per individual every year and unlimited gifts to medical providers and educational institutions first.
As an example, a couple with two children can gift $52,000 per year to them ($26,000 per couple times two children) and move more than a half million dollars out of their estate over 10 years without dipping into their estate tax exemption. When the time comes, if the children or grandchildren are planning to attend college, the couple can pay all their expenses directly to the university and not owe gift tax.
For very wealthy individuals, it's a good time to think about making financial gifts.
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