The Help Desk

Your tough questions. MONEY's smart answers.
Presented by

What gifting strategy should I use to lower estate taxes?

July 19, 2012: 6:30 AM ET

I understand the tax code may have major changes next year, especially where inheritance and gift taxes are concerned.  How do you decide how much you can gift while alive to lower estate taxes? — Elinor A.

If Congress doesn't extend the tax law provisions set to expire at the end of 2012, there will indeed be changes to the gift and estate tax rates and exclusion amounts, says Gil Charney, principal tax researcher at the Tax institute of H&R Block. In 2012, the gift and estate tax exemption is $5,120,000, meaning you can have a taxable estate plus make lifetime gifts up to this amount without paying any taxes. But that historically high exemption amount is scheduled to drop to $1 million in 2013.

No one can predict what Congress will do, but Charney advises that people with very large estates who are planning on making gifts may want to take advantage of the high exemption in 2012. For example, suppose someone with an estate of $5,120,000 or more makes a $2 million gift this year. The gift tax would be zero because the gift is less than the exemption amount. The gift would reduce the amount of the taxpayer's estate, which would be free from estate tax at death. However, if you made that same gift in 2013, approximately $1 million would be subject to gift tax under the new laws. Taxes would add up to almost $430,000.

There is one caveat to this. It is not yet clear if the change in the law would require a so-called clawback provision that would require a payment of a gift tax or a future tax to be paid by the taxpayer's estate on pre-2013 gifts exceeding the $1 million limit.

Also important to keep in mind: Any individual can gift $13,000 per year to as many people as he or she wants without gift or estate tax consequences. Married couples can gift $26,000 per year to as many people as they like.

— Walecia Konrad

Got a question for the Help Desk? Send it to

Posted in: Family Money, Taxes
Join the Conversation
Help Desk

Got a question about your money? We want to hear it! Each week we're answering your questions on CNN, Headline News and

Your email or phone number won't be published; we'll use it to get in touch if we need more information about your question.
Help Desk Video
  • NEXT
    Not enough money in America's 401(k)s
    Despite the surging stock market bringing balances to record highs, the average Fidelity 401(k) account has less than $100,000 in it. That's just not enough. Play
  • NEXT
    Explaining Obama's myRA
    President Obama unveiled a new savings plan for retirement accounts, aimed at encouraging people to start building their nest egg. But how exactly does it work? Play
  • NEXT
    Tricks on how to save in your 20s
    Saving for your retirement in your 20s doesn't have to be a financial burden. Prioritizing your expenses is usually the first step in building a nest egg. Play
  • BACK
    Don't get fooled by Black Friday sales
    Here are some of the tricks that retailers use to make you think you're getting a deal. Keep an eye out for them while shopping this Black Friday. Play
Best Tips
Some of the nation's leading business owners, investors, and thinkers share their thoughts on rebuilding your wealth. More
These strategies can help you manage the challenges -- both emotional and financial -- of helping an aging parent from afar. More
You don't need to be fanatical to get to 780. Those in the know say these moves matter most. More
Featured Newsletters

Tips for saving and spending smarter.

Search This Column
View all entries from this: Week, Month
Help Desk
More help for your career, your investments and your budget.
Powered by VIP.