There are some estate planning strategies that are rather complex, and they have their place in certain situations. But there are others that are relatively simple and straightforward, and one of them is the practice of tax-free gift giving.
It would seem as though you have the right to earn money, pay income tax, and then take the remainder and give a portion of it to anyone you choose without incurring any additional tax responsibility. So the first thought that many people have with regard to transferring assets to their loved ones without being responsible for paying the estate tax would be to give gifts while they’re still alive.
Unfortunately, the powers that be will not allow this. There is a gift tax in place with the same 35% rate as the estate tax. Though there is a lifetime gift tax exemption, it is unified with the estate tax exclusion. So if you were to give gifts using this exemption your available estate tax exclusion would be reduced by the amount of the gifts.
However, there are some additional gift tax exemptions that can be utilized to great advantage. One of these is the educational gift tax exemption. Each person may pay the school tuition of any number of individuals as a gift free of the gift tax. These gifts can equal any sum of money. It should be emphasized that the educational exemption only applies to tuition, and not living expenses, books, and fees.
Given the high cost of education these days, you can see how these gifts could go a long way toward reducing the taxable value of your estate. And while you are doing so you are also extending an opportunity to some of your loved ones that is truly priceless: a chance to realize the full potential that lies within. Without question, educational gifts can provide you with multiple benefits and they are something to consider when you are planning your estate.