Giving While Youêre Living
by: Joseph Judah, Mutual of Omaha

Instead of just leaving bequests to loved ones after youêre gone, consider making gifts while youêre still alive. Giving gifts while youêre still living can help reduce the size of your estate and minimize potential estate taxes. And, with careful planning, you can also limit federal gift taxes.

Tax-free Gifts:
Each year, you can give away up to $11,000 in cash or other assets per recipient to as many individuals as you want, gift tax free. If youêre married, you and your spouse can jointly give away $22,000 per recipient (a "split gift"). If you have several children to consider, as well as their spouses, and grandchildren, those annual gifts can really add up and may significantly reduce the size of your estate
   Another way to avoid gift taxes is to pay medical expenses or school tuition for a loved one. There are no limits on the amount of these expenses you can pay, as long as you give the money directly to the medical provider or the educational institutions where the expenses were incurred.
   Another possibility might be to make tax-free contributions to the 529 college savings plan of a beneficiary. In one year, you may invest as much as $55,000 ($110,000 if you split the gift with your spouse) in a 529 plan. However, that $55,000 will be treated as if it were a series of $11,000 gifts made over five years. As a result, you wonêt be able to make any other tax-free gifts to that person during that five-year period.

Lifetime Gift-tax Credit:
A lifetime gift-tax credit allows you to give away as much as a total of $1 million to family, friends, and other beneficiaries over your lifetime without owing any federal gift tax. If you are married, you and your spouse each are entitled to a separate credit. Use any or all of the credit to offset taxes on gifts, and the amount you have used will not be available to offset taxes on your estate.
   Gifts made under the $11,000 tax-free-gift rule will not use up any of your lifetime gift-tax credit. However, any gifts you make over the $11,000 limit per individual, per year, will reduce your lifetime available credit. But you generally wonêt have to pay any federal gift taxes unless your total gifts over the $11,000 limit add up to over $1 million.

Giving after Youêre Gone
Under current law, you can leave bequests of up to $1.5 million free of federal estate taxes in 2003. If youêre married, you and your spouse can each leave up to $1 million estate tax free. This amount is scheduled to increase to $2 million in 2006, and $3.5 million in 2009. In 2010, the estate tax is scheduled to be repealed, only to return a year later, depending on Congressional action. Because gifts that are sheltered by your lifetime gift-tax credit will reduce the amount you can leave tax free to your heirs, itês important to carefully consider your gift- and estate-tax strategies.

Securing Your Childrenês Future

Choosing to use some of your assets to benefit your children or grandchildren is a simple decision. The difficult part is finding the best way to achieve your objective. With proper planning, you may be able to provide a financially secure future for your child or grandchild and limit the tax effect of a gift.
   The federal gift-tax annual exclusion allows you to shelter gifts of up to $11,000 per recipient, per year ($22,000 if your spouse joins in the gift). However, this tax break is not available for gifts of future interests in property. This fact generally causes concern among parents and grandparents because they often are reluctant to give a child complete control of assets until the child is old enough to handle them responsibly. To sidestep this problem, yet qualify for the gift-tax annual exclusion, consider the following strategies.

Establish a minors trust.
The child benefits from the trust income and principal prior to turning age 21. At age 21, the child has unlimited access to the trust, but for only a very short period of time. At a later date, restrictions can be reinstated and trust benefits can resume.

Open a custodial account.
This account gives the child ownership of the assets, but leaves full control of those assets with the custodian. However, be aware that when the child turns age 21 (in some states, age 18), he or she will receive the account assets. In some cases, it may make more sense to keep assets safe in trusts for a longer period and address tax consequences with other techniques.

   *Information provided is based on current federal estate tax law. Contact your insurance agent as well as your legal and tax counsel for tax and estate planning advice.