This is easy and it doesn’t cost anything. Each year, you can give up to $12,000 ($24,000 if married) to as many people as you wish. So if you give $12,000 to each of your two children and five grandchildren, you will reduce your estate by $84,000 (7 x $12,000) a year – $168,000 if your spouse joins you. (This amount is now tied to inflation and may increase every few years.)
If you give more than this, the excess will be considered a taxable gift and will be applied to your $1 million gift tax exemption. Charitable gifts are unlimited. So are gifts for tuition and medical expenses if you give directly to the institution.
Irrevocable Life Insurance Trust (ILIT)
An easy way to remove life insurance from your estate is to make an ILIT the owner of the policies. As long as you live three years after the transfer of an existing policy, the death benefits will not be included in your estate.
Usually the ILIT is also beneficiary of the policy, giving you the option of keeping the proceeds in the trust for years, with periodic distributions to your spouse, children and grandchildren. Proceeds kept in the trust are protected from irresponsible spending and creditors, even ex-spouses.
For more information on-free gifts, irrevocable life insurance trusts and reducing your estate tax, please contact our experienced Estate Planning Attorney in Woodland Hills.