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Estate Planning Considerations
for 2006
Credit Increase
Starting January 1, 2006 and continuing through December 31, 2008, the applicable credit amount (credit) is raised to $2.0 million per person. This means that individuals with estates of $2.0 million or less will not pay federal estate taxes provided they have the full credit available. The top estate tax bracket is reduced to 46% in 2006.
For married couples who maximize their credits, estates worth less than $4.0 million will be exempt from federal estate tax.
Annual Gift Tax Exclusion
The annual gift tax exclusion applies independently of the credit and is raised from $11,000 to $12,000 per donee (recipient) per calendar year, starting January 1, 2006. A husband and wife may make a present gift of cash or property equal to $24,000 per year, per donee.
For example, after January 1, 2006, a husband and wife may give each of their three children $24,000 in cash or property, or $72,000 in total, without incurring a gift tax liability.
- NOTE: There is an unlimited gift tax exclusion for applicable tuition payments and medical expenses.
Gift Tax Credit
The credit may be applied to gift transfers occurring during life. However, the maximum credit amount that may be used is $1.0 million.
For example, if a taxpayer makes a $712,000 cash gift to an individual and elects to use the credit to offset the gift tax after application of the annual exclusion of $12,000, the overall credit is reduced by $700,000 to $1.3 million and the credit amount for future gifts is lowered to $300,000.
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