Gifts to Save Estate and Income Taxes

GiftsDuring the last ten years, Congress has made it easier to save taxes by permitting the passage of greater amounts of wealth from one generation to the next. One of the simplest means of saving estate taxes is to give money away while you are still alive. No reporting is required for gifts up to $13,000 per person per year.

Thus, a husband and wife can join together and give up to $26,000 to each donee. This way, a couple having two married children and four grandchildren could give away as much as $156,000 per year (more if in-laws are included) without filing a gift tax return. Gifts in excess of this annual “allowance,” however, must be reported to the IRS and will reduce the estate tax Unified Credit mentioned above. Since Ohio does not have a gift tax, but does have an estate tax, lifetime gifts also save Ohio tax on the assets transferred from one generation to the next.

One of the principal objections that parents and grandparents have to making substantial annual gifts is that they lose control over the funds. Parents and grandparents are often willing to see children and grandchildren receive the annual earnings from the principal, but are unwilling to put the principal sum at the disposal of their children and grandchildren at an early age. Through a trust, it is possible to make annual gifts yet maintain control over the use of the money.

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