Estate Taxes and Gift Taxes – How To Preserve Your Legacy

Estate taxes are a common topic these days. The “death tax” in America is at a 50% tax rate if you have a large estate, and taxes are set to go up under the current presidential administration. If you need to put your tax strategy in order, it’s best to talk to a good estate tax attorney. My mother is one, here in Washington state, so I know a bit about it. There’s a fair amount you can do to protect your wealth from taxes. Some of that is giving your money away before you die… You can give away $12,000 a year per person, so if you have a lot of wealth it can take a while.

I couldn’t get my mom to record a video for my site, but here’s the next best thing – Dave Ramsey talks about estate taxes on his popular FOX TV show.

Dave Ramsey On Estate Taxes and Gifts

When you give someone your property or money during your life, you are subject to a federal gift tax. Upon death, any money or property that you own is subject to federal estate taxes while your gross income is also subject to federal income taxes. In most cases however, the gift tax is not imposed on any monetary or property gifts that you make either to a spouse, family member or to charity. The gift tax applies only when the value of the gifts exceeds the annual exclusion of the year. Even when it does, it is still possible to be exempted by the unified credit. This is an amount that reduces or eliminates the tax and it applies to both gift taxes and estate taxes. This is done by subtracting the unified credit from the gift tax. This gift however is calculated annually and affects the amount that can be used in a later year. During a lifetime, the total amount used against the gift tax will affect how much can be used against the estate tax as well.

The unified credit through 2009 remains at $345,800, exempting $1 million from tax for taxable gifts and it increases during the same period for unified credit against estate taxes. How is a gift tax determined? Usually, you make a gift if you give money or property without expecting something of equal value in return. Alternatively, selling something at less than its full value, making an interest-free loan or a reduced-interest loan are all considered gifts. While the general is that ‘any gift is taxable’, there are exceptions to this rule. For example, some gifts that are not considered taxable include; tuition or medical expenses paid directly to an educational or medical institution for someone, a gift to a spouse, a gift to a political organization for its use or a gift to a charity are all untaxable gifts.

What about estate taxes? Your gross estate includes all your property with interest at the time of death. This includes; payable life insurance proceeds, payable annuities and transferable property within three years before death. Allowable deductions from your taxable estate includes; funeral expenses, debts owed, state death deductions, marital deductions and charitable deductions. Generally, unified credit that is not used against gift tax can be used to reduce or eliminate estate tax. To benefit from this, an estate tax return, Form 706 must be completed.

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