Estate and gift tax planning changes in constants for 2006.
Starting with the year 2006, the following numbers will be applicable:
· The applicable exclusion amount for estates (that is the amount of your estate that will not generate an estate tax) increases to $2,000,000.00. So, if you have an estate of $1,600,000 and were thinking you needed to get rid of $100,000 to avoid an estate tax, you have solved your problem by living until January 1, 2006. Of course, if you don't live until 2006, your estate will owe some tax.
· The Generation Skipping Transfer Tax exemption tracks the applicable exemption amount so for those of you with reverse QTIP marital trusts that you never understood, they are no longer necessary.
· The annual gift tax exclusion amount per donee increased to $12,000 and the gift tax exemption amount over lifetime remains at $1,000,000. It is still the case that if you exceed $12,000 in gifting to a particular individual in a year, then you will have to file a gift tax return and apply the amount of the excess to your lifetime gift tax exemption amount. When you cumulatively go over $1,000,000 in taxable gifts, then you will have to pay gift taxes on the excess and subsequent gifts at the then current rates, which until 2009 or changed by Congress and the President, will be 41% and up. Remember, gift taxes are taxed on the gift not the gift plus the tax on it as estate taxes are. Generally speaking, gift taxes are payable by the donor.