The federal government imposes a substantial tax on gifts of money or property that exceed certain levels. Without such a tax, someone with a sizable estate could give away a large portion of his or her property before death and escape death taxes altogether. For this reason, the gift tax acts more or less as a backstop to the estate tax. And yet, few people actually pay a gift tax during their lifetime. A gift program can substantially reduce overall transfer taxes; however, it requires good planning and a commitment to proceed with the gifts.

Advantages of Gift Giving

You may have many reasons for making gifts -- for some gift giving has personal motives, for others, tax planning is what motivated them. Most often, you will want your gift-giving program to accomplish both personal and tax motives. A few reasons for considering a gift-giving plan include:

Assisting someone in immediate financial need

Providing financial security for the recipient

Giving the recipient experience in handling money

Seeing the recipient enjoy the property

Taking advantage of annual exclusion allowance

Paying gift tax now to reduce overall taxes later

Giving tax advantaged gifts to minors

This information is designed to provide a general overview with regard to the subject matter covered and is not state specific. The authors, publisher and host are not providing legal, accounting or specific advice to your situtation.