39.10 Planning for a Potential Estate Tax

Estate tax planning has been complicated by short-term legislation that creates uncertainty over what the rules will be in upcoming years (39.9). However, if you have substantial assets so that estate tax is a possibility for you, there are general approaches that you can take to reduce or eliminate a potential estate tax.

You can make direct lifetime gifts. Any appreciation on the property transferred will be removed from your estate. Furthermore, each gift, to the extent of the annual per donee exclusion (39.2), reduces your gross estate (39.9). Life insurance can be assigned to avoid estate tax, provided the assignment takes place more than three years before death (39.8). You can provide in your will for bequests that will qualify for the marital and charitable deductions.

The marital deduction.

A married person may greatly reduce or eliminate estate tax by using the marital deduction. Property passing to a spouse is generally free from estate or gift tax because of an unlimited marital deduction.

Weigh carefully the tax consequences of leaving your spouse all of your property. For maximum tax savings, you may want to give your spouse only enough property to reduce your taxable estate to the applicable exemption amount (39.9). The unified credit amount will then eliminate tax on that amount at the time of your death. By leaving your spouse less than the maximum deductible amount, you may be able to reduce the estate tax at the time ...

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