When the value of your estate exceeds the estate tax exclusion you are going to have to look for tax efficiency strategies. Depending on the specific nature of your assets a number of different estate planning instruments can be utilized either alone or in tandem. Some are a bit complex, and others, like tax-free gift giving, are simple but very useful on more levels than one.
The thing that makes gifting a dual purpose solution is the fact that you can enjoy the experience of giving something of value to a loved one while reducing the taxable value of your estate in the process.
There is a gift tax in place that carries the same rate as the estate tax to dissuade people from taking this route, and the estate tax exclusion and lifetime gift tax exemption are unified. This unification means that if you use any portion of your $5 million lifetime gift tax exemption to give a gift your estate tax exclusion is reduced by the amount of that gift.
Other exemptions exist though, and one of these is the educational gift exemption. U.S. taxpayers are entitled to pay the school tuition of an unlimited number of students, equaling any sum of money, free of the gift tax. So you can pave the way for your loves ones, watch them enjoy the gift of education while you are still alive, and reduce the taxable value of your estate all in one fell swoop.
It should be noted the educational exemption can only be used to pay tuition, not books and fees, and you must pay the tuition directly to the school. But, each person can give tax-free gifts of as much as $13,000 each year to an unlimited number of recipients. If you are married you and your spouse could give as much as $26,000 annually, and this should be sufficient to cover fees and living expenses.
