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Strategy is Key in Giving Away Assets and Making Gifts

A large part of effective estate planning is creating a strategy that will protect your assets while allowing you to pass them on to your heirs. One of the most effective ways to accomplish these goals is to give those assets away. Of course, accomplishing your goals while giving assets away is not always as simple as mailing a check or signing over a title, it requires strategic planning.

In order to protect assets and minimize tax consequences, there are a number of estate planning tools that can be used. In our next two posts, we will discuss some of those estate planning options that may be useful in minimizing exposure to the estate tax, gift taxes, and capital gains.

Perhaps the simplest route one can take in avoiding estate taxes is through a simple gift. While New Jersey doesn't have a gift tax, there are federal taxes to take into account when making a gift. The IRS has a $1,000,000 lifetime gift tax exemption, which means that you can give away up to a million dollars before having to pay a federal gift tax.

However, both you and your spouse and can make smaller annual gifts of up to $13,000 per person without having to count those gifts toward your million-dollar lifetime exemption. Once the lifetime exemption is reached, a federal gift tax of up to 35% might apply to additional gifts, but that rate might still be preferable to the estate tax in place at the time.

The exemption and tax amounts are, of course, subject to change. If you are considering making gifts as part of your estate plan, you should seek the advice of an experienced estate planning attorney before taking any action.

In our next post, we will discuss a few other estate planning tools that might be useful in helping to give away assets, including Charitable Remainder Trusts and Charitable Lead Trusts.

Source: The Spectrum, How to smartly give away assets, 11/14/10

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