One of the most simple, direct, and efficient ways to reduce the taxable value of your estate is by giving tax-free gifts to your heirs. “Tax-free” is the operable phrase here, and there is in fact a gift tax in place to prevent people from giving away all of their assets while they are still alive to avoid the estate tax.

There are gift tax exemptions however, and one of them is the $5 million lifetime exemption. Using this exemption you can give gifts that total as much as $5 million over the course of your life free of the gift tax. But there is catch–the gift tax exemption is unified with the estate tax exclusion. So if you did use up the whole $5 million exemption giving tax-free gifts your entire estate would be subject to the estate tax.

There are however other gift tax exemptions that can be put to good use. One of them is the $13,000 per person annual gift tax exemption. Each taxpayer is allowed to give gifts totaling as much as $13,000 to an unlimited number of recipients without incurring any gift tax liability. If you are married it would be possible for you and your spouse to combine your exemptions and give as much $26,000 annually to as many people as you want to tax-free.

The $13,000 annual exemption is something that most people have heard about, but many people are not aware of the medical exemption. According to IRS regulations you can pay the medical expenses of others as a tax-free gift. There is no cap on the amount, and you can give these gifts to any number of recipients.

In addition to paying bills for treatment received, you can also pay health insurance premiums as a gift, and this can include some forms of long term care insurance. These gifts are invaluable to the uninsured and giving in this manner is a win-win as you buy peace of mind for a loved one while gaining estate tax efficiency as an added bonus.

Tags: Elder Law, Estate Planning, Tax Free Gifts