Personal Finance: Ask the Experts

Get advice on money matters from The Bee's Claudia Buck and a panel of local experts

August 23, 2012
How do we reduce my father's taxable estate through gifting?

Q: My 94-year-old father now lives with my eldest sister and she is also the executrex/trustee of his $1.2 million estate which is in a trust. If Congress does not move to keep the current exemption level at $5 million, will he be taxed only on the amount over $1 million or the full amount? Second question: Is there any way to reduce the amount over $1 million? Third question: Can she/he gift each of us $13,000. Without paying gift taxes? Is that $13,000 for children only or is it OK to gift another $13,000 to my spouse? Please help. Thank you. -- Sherry, Rancho Murieta

A: Current law provides for a credit against estate and gift taxes equating to $5 million of taxable estate. If the credit decreases to the equivalent of, say, $1 million, only the taxable estate in excess of $1 million would be subject to tax, in effect. Taxable estate is the fair market value of the taxpayer's assets less allowable deductions, including debts and expenses of administering the estate. The way the calculation works, assuming a taxable estate of $1.2 million, the tax would be calculated on $1.2 million, and then reduced by the credit, leaving the net tax due.

There are a number of ways that a taxpayer can reduce their taxable estate. The most direct is through gifting. Under the current gift tax rules, there is a $13,000 gift exclusion per donee per year. In other words, a donor can give $13,000 each to any number of donees without making a taxable gift. If a donor makes a gift to any one donee in excess of $13,000, they start using their unified estate and gift tax credit and must file a gift tax return, IRS Form 709, to report the gift. As mentioned above, the current credit equates to $5 million of taxable gifts.

Under some circumstances, gifts can be includable in a decedent's taxable estate, such as certain gifts made within 3 years of death. Before considering large gifts, it may be best to talk to an estate planning professional.

Beyond gifting, other methods exist to reduce the value of assets in an estate. Most involve planning techniques that require sound advice from estate planning professionals. If your father wants to look into more advanced strategies, I suggest meeting with an attorney that specializes in estate planning.

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Meet Our Financial Experts

Claudia Buck

Claudia Buck is The Sacramento Bee's personal finance columnist. Read all her columns here. Contact her at

Terri Carpenter

Terri Carpenter offers advice on job hunting, retraining and career counseling. Carpenter works at Sacramento Works Inc., the career and job training arm of the Sacramento Employment and Training Agency (SETA). With 15 years in the field, she has hands-on experience with everyone from first-time job seekers to career professionals seeking advice after a layoff or looking for a mid-career change. Ask her a question.

Carlena Tapella

Carlena Tapella is a partner in the law firm of Webb & Tapella Law Corp. in Sacramento. The firm specializes in estate planning and probate, such as estates, trusts, conservatorships and litigation. She is a past president of the Sacramento County Bar Association's Estate Planning & Probate Section. Ask her a question.

Kimberly Foss

Kimberly Foss, certified financial planner, is the founder of Empyrion Wealth Management in Roseville. With nearly 30 years in the financial industry, her clients include women in transition, small business owners, retirees and "pre-retirees." Ask her a question.

Jesse Weller

Gregory Burke, a CPA and tax expert with John Waddell & Co. in Sacramento since 1984, worked as an IRS tax auditor for six years. He’s a past chairman of the California Society of CPAs. Ask him a question.

Daniel Tahara

Daniel Tahara takes your questions about California taxes. Tahara, a spokesman for the state Franchise Tax Board, has 10 years of experience as a tax auditor. Ask him a question.

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