Gifts are money and property that you give to an individual or charity.
Gifting can help reduce the size of your estate and reduce your estate taxes. You can give anyone you choose a tax-free gift of cash or property worth up to $12,000 (in 2008). If you and your spouse make a joint gift, the tax-free amount may be increased to $24,000. In addition to annual exclusion gifts, an individual may be able to gift their lifetime gift exemption amount of $1 million.
There are different ways to make gifts. Gifts may be given outright to individuals or in a trust. You can establish custodial accounts for your children through The Uniform Gifts to Minors Act or The Uniform Transfer to Minors Act. Another type of gift is a qualified transfer, which can be used for making special gifts such as paying for someone's education or medical bills. A qualified domestic trust also may be used when you are giving to a spouse who is not a U.S. citizen.
Making gifts may be a consideration at any time, whether you're developing a financial plan or reconsidering the one you have. Gifting is especially important in the estate planning process and helps to reduce your estate taxes.
Proceeds from a life insurance policy paid because of the death of the insured are generally excludable from the beneficiary's gross income for federal income tax purposes. IRC Sec. 101(a)(1).