Everyone in business should be aware of how income taxes will affect them.  Although most business people try to set up a favorable income tax plan, they are often unaware of some important estate planning strategies.

Tom Crandall is a good example.  Tom is a very successful real estate developer.  Shopping centers, condominiums, industrial parks – no matter what the project, Tom tackled it with the enthusiasm and skill that were the foundation for his success.

At age 45, Tom Crandall is now firmly in control of his life.  His wife is warm and supportive, the perfect mother to their three children.  His business is growing rapidly and he can look forward to even greater financial rewards.

Tom understands the importance of tax planning and because his future is so promising, he wants to set up the best possible tax plan for his estate.  His lawyer has explained that by taking advantage of the unlimited marital deduction, Tom or his wife can transfer their entire estate to the surviving spouse tax-free.  In addition, each can use what is called the “applicable credit” to reduce federal estate taxes dollar for dollar.  The applicable credit amount is $780,800, which is the equivalent of an estate deduction of $2,000,000.

However, Tom is certain that his and his wife’s estate will be much greater than $2,000,000 – probably in the millions.  Even with the unlimited marital deduction and the unified credit, Tom realizes that his estate will eventually be subject to substantial federal taxes.  He feels there must be another answer to his problem.


Tom is right.  There is a better way.  A program that takes advantage of the maximum annual exclusion of gifts from taxes will not only help Tom protect the estate from federal estate taxes, but can save him current income tax dollars as well.

Here’s how it works.  Under the tax law, a taxpayer can exclude from tax gifts of up to $12,000 a year for each gift recipient.  If the taxpayer and spouse elect to “split” the gift, the annual limit is increased to $24,000.  Amounts over these limits are subject to gift taxes.  To qualify for the exclusion, the gift must be an outright gift.  If income producing property (including cash) is transferred as a gift, the income tax liability for that property is also transferred to the recipient of the gift.

A gift program could work wonders for Tom’s estate.  He and his wife can give $24,000 annually to each of their three children – a total of $72,000 a year.  If the couple has an additional life expectancy of thirty years, that means they’ll be able to shift $2.16 million out of their estate.  If they also had four grandchildren, the amount could total $5.04 million.

It’s true that you can’t take it with you, but your accountant can help you see to it that the IRS won’t take it either.