It is said that ignorance of a law does not excuse you of a crime if you violate it. Similarly, not being aware of a tax does not excuse you from having to pay it. This is something to keep in mind when you are giving gifts of significant value to your loved ones.
You may think that there should be no charge imposed by the government simply because you decided to transfer assets to your loved ones. Because of this you may not be aware of the existence of the gift tax, but it is very real indeed.
The gift tax is in place to prevent people from giving gifts to their loved ones while they are still alive in an effort to avoid the estate tax. In fact, the gift tax and the estate tax are said to be “unified” by the IRS. There is a $5.12 million exemption, but this covers both your estate and any gifts that you may give while you are still alive utilizing this lifetime exclusion.
So if you were to give gifts totaling the unified exclusion amount throughout your life all of your estate would be subject to the estate tax.
It should be noted that this $5.12 million figure is only in place through the end of this year so you may not be as safe as you think. In 2013 the exclusion is scheduled to be reduced to just $1 million.
As you can see, not only are the tax laws somewhat complicated, but they are always changing so your estate plan could be up-to-date one year and out of date the next. This is one of the reasons why it is so important to develop an ongoing relationship with a licensed and experienced Indianapolis estate planning lawyer and be prepared to make revisions when necessary.
Mr. Kraft assists clients primarily in the areas of estate planning and administration, Medicaid planning, federal and state taxation, real estate and corporate law, bringing the added perspective of an accounting background to his work.