The estate tax is a big issue when times are politically charged. One popular example is that if the billionaire dies this current year no estate taxes would have to be paid. But if someone having property worth over $1 million dies in the following year the tax will be 55% on the extra amount. Unless the Congress alters it this is the weird state of things in the tax world.

Linked with estate tax is the gift tax. It has been set up so that people cannot give away their lifetime’s fortune enabling heirs to skip taxes after his or her death. It is now 35% – the lowest rate since the 30s. Since there are no hints of winds of change or even if there it will be contested for years in courts, the rich are thinking of making generous gifts to reduce the taxes of their heirs afterwards.

Bu why should the wealthy person cough up 35% as gift tax today when their heirs can pay less after the person’s demise? This is because the rate itself is a present gifted to the rich.

In 2011 the gift tax will increase to 55% with only $1.12 million being exempted. If the law remains unchanged then the 20% difference is a 57% spike. Steve Kunkel of accounting firm CBIZMHM said, “People are so focused on the estate tax that they’re not paying attention to this. People are looking beyond 2010, and in doing so they’re going to miss some significant savings this year”.

Apart from the record breaking reduced rate another incentive for making generous gifts this current year is that the value of properties and assets continue to remain depressed. If these are given away at present they will appreciate with your inheritors and not with your property.

Richard A Behrendt of Robert W. Baird & Company noted that single persons having over $5 million and couples with over $10 million should think about granting gifts. There is the possibility of higher taxes on estates in future. He said, “I wouldn’t be rushing to do this today, but I would be planning.”
The break as regards gift tax would be gift to the children of the wealthy; this current year offers even more benefits for those who want to transfer to grandchildren. This is known as the generation-skipping-tax.

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