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THE $12,000 CHRISTMAS PRESENT

December 20, 2007

The income tax isn't the only tax that deserves holiday season attention. You still have 11 days to make a dent in your estate tax. Don't assume that Congress will deal wisely and responsibly with the estate tax. If they do nothing, it will come roaring back in 2007 with a lower exemption and a higher rate.

Assuming you are fortunate enough to have such worries, there are some easy things you may still be able to do this year. The first tool you should reach for is the $12,000 per donor, per donee annual gift tax exclusion. This is available every year, but once the year is over, your chance to use that exemption is gone forever.

You might think that if you have a net worth high enough to worry about the estate tax - over $1 million, assuming current law and assuming you live to 2011 - the $12,000 exclusion is too small to worry about. You'd be wrong. Think about the math. Say you are a married couple with two children and four grandchidren. Assuming you like them, that means you can give away between the two of you 12 annual exclusion gifts each year, totalling $144,000. If you continue to like your descendants, you can push $1,440,000 out of your taxable estate over ten years $12,000 at a time, saving about half that in estate taxes on your death.

Remember, the checks have to clear by year-end, so if you are making your year-end gifts, don't wait much longer.

Visit the Tax Update each day through December 31 for the latest installment in our year-end tax planning series.

Tags: year-end tax planning.

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