The yearly gift tax exclusion level permits you to make contributions of up to $13,000 to any number of donees without incurring any federal gift or estate tax obligation. Because the assets are presented as gifts, they are no longer deemed to be part of your estate and so do not count towards your federal estate tax exclusion. If you donate more than $13,000 to any one person, the extra amount will count against your lifetime gift tax exclusion. The lifetime gift tax exception was $1 million in 2010. The yearly gift tax exception may be used in a variety of ways, including cash donations, gifts of other property, and contributions to trusts.
The yearly gift tax exception is often employed by couples and people who are satisfied with the amount of their wealth and are prepared to forego part of it over their lives. It is also utilized by married couples with assets in excess of their joint federal exclusion level, as well as single persons with assets in excess of the federal exclusion threshold, to reduce the burden of federal estate taxes on their surplus assets. Furthermore, married couples who wish to avoid federal estate taxes but do not want to form a credit trust may utilize the yearly exclusion. These spouses keep a tight eye on their assets and make yearly contributions to preserve their combined fortune from exceeding the federal estate tax relevant exclusion threshold.
If you are subject to gift taxes, you must submit Form 709: U.S. Gift (and Generation-Skipping Transfer) Tax Return.