When you hear that the estate tax is poised to take 35% of the taxable portion of your estate you might get to considering providing gifts to your enjoyed ones while you are still alive.
This is a very sensible approach, however the powers that be are well conscious of the fact that people may be believing along these lines. So as a response, there is a gift tax in location that carries the exact same 35% rate to prevent people from going this route.
Now you might have heard people say that there is a $5 million lifetime gift tax exemption that enables you to provide gifts amounting to this quantity without incurring any tax liability. It is real that there is a $5 million gift tax exemption at this time as a result of the passage of the Tax Relief, Joblessness Insurance Reauthorization, and Task Development Act of 2010 (it used to be just $1 million for individuals). So you can indeed provide presents equating to as much as $5 million over your lifetime devoid of the gift tax.
However, the gift tax and the estate tax exemptions are combined. You don’t get a $5 million estate tax exemption in addition to the $5 million gift tax exemption for an overall of $10 million. There is a $5 million combined estate/gift tax exemption. If you were to provide presents worth a total 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 provisions consisted of in this tax act that was passed at the end of last year enables for the portability of the combined estate/gift tax exemption. So now, when you die your making it through spouse may use your exemption in addition to his/her own. Given this reality, married couples do have a $10 million cushion to utilize at today time.