A tried-and-true estate planning strategy is to make tax-free gifts to loved ones during life, because it reduces potential estate tax at death. There are many ways to make tax-free gifts, but one of the simplest is to take advantage of the annual gift tax exclusion with direct gifts. Even in a potentially changing estate tax environment, making annual exclusion gifts before year end can still be a good idea.

What is the Annual Exclusion?
You can donate up to $14,00 per recipient tax-free without using any of your $5.45 million lifetime gift tax exemption with the 2016 gift tax annual exclusion. If you and your spouse divide the gift, you can give $28,000 per recipient.

Gifts are also generally excluded from the generation-skipping transfer tax, which normally applies to transfers to grandchildren and others more than one generation below you
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Gifted assets are removed from your taxable estate, which can be advantageous if you expect them to appreciate because the future appreciation can also avoid gift and estate taxes.

Making Gifts in 2016
The exclusion is scheduled to remain at $14,000 ($28,000 for split gifts) in 2017. But that is not a reason to skip making annual exclusion gifts this year. You should use your 2016 exclusion by Dec. 31, or you’ll lose it.

The exclusion doesn’t carry from one year to the next either. For instance, if you don’t make an annual exclusion gift to your son this year, you can’t add $14,000 to your 2017 exclusion to make a $28,000 tax-free gift to him next year.

While the President-elect and Republicans in Congress have indicated whether they want to repeal the estate tax, it’s indefinite exactly what tax law changes will be passed, since the Republicans don’t have a filibuster-proof majority in the Senate. And, in some states, there is a state-level estate tax. So if you have a large estate, making 2016 annual exclusion gifts is generally still well worth considering.

Contact an advisor for more information and let them help you determine how to make the most of your 2016 gift tax annual exclusion