Although the rate of the tax has been reduced to 35% from the 55% that had been anticipated, few American are anxious to part with over a third of their legacy as they pass it along to their loved ones. If you find that the value of your estate exceeds the $5 million estate tax exclusion you are probably going to look for ways to save tax. One very simple but direct and efficient way of doing so is giving lifetime tax free gifts.

Giving gifts to those who would otherwise be inheriting the money after you pass away while you are still alive is a logical approach to avoid the estate tax. The only snag is the fact that the IRS is thought of this as well, so there is a gift tax in place that carries the same rate as the estate tax. There are, however, exemptions in place that can be used creatively to transfer assets to your loved ones in a tax-free manner while reducing the value of your estate in an effort to ease or eliminate the future estate tax burden.

There is a $5 million lifetime gift tax exemption, but it is unified with the estate tax exclusion so using it does not directly provide you with any estate tax efficiency. However, there is also an annual $13,000 per person (or donee) exemption that can be utilized, and it does not count against your lifetime exclusion.

Each individual can give gifts totaling as much as $13,000 each year to an unlimited number of people. If you are married, you and your spouse can combine your respective annual exemptions and give up to $26,000 as a gift to any number of recipients free of the gift tax. So could use this annual exemption give your loved ones part of their inheritances in advance, free of the gift tax at the same time reduce the future estate tax exposure in the process.

Gifitng is one of the most simple and yet powerful estate planning methods.