Annual gift tax exemption has been increased to $14,000

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The annual gift tax exemption has been increased to $14,000 in 2013, up from $13,000 last year. That’s due to an adjustment for inflation.

This means that you can give any person $14,000 this year without any gift tax liability at all. Making annual gifts of the exemption amount is one of the best and easiest forms of estate planning, because it transfers assets from one generation to the next without any tax liability whatsoever.

If you have multiple heirs, the amount you can give away tax-free multiplies quickly. For instance, if you have two children, and each child is married and has two children, you can give $14,000 to each child, spouse and grandchild. That’s eight recipients at $14,000 each, or a potential maximum gift of $112,000 a year. If your spouse gave an additional $14,000 to each recipient, that would be $224,000.

Of course, very few people can afford to make gifts of this magnitude. But if you’re thinking about making gifts to children and grandchildren, regardless of the size, you might want to consider setting up a trust for your beneficiaries – especially if they are young. There are many practical as well as tax benefits to making gifts by means of a trust, and doing so can further increase the value of your gifts.