Annual Exclusion Gifts. One of the most powerful estate planning techniques is also one of the simplest. For 2009, individuals can make an unlimited number of gifts of up to $13,000 per recipient, per year. Further, this amount can be doubled to $26,000 for married couples making gifts. Over a period of time this can result in substantial transfer tax savings (as both the gift itself and its income and growth are removed from the donor's estate), without paying gift tax or using any lifetime gift exemption (discussed below).

Tuition and Medical Gifts. Additional unlimited gifts can still be made by paying tuition costs directly to the school or medical expenses directly to the health care provider.

Estate Tax Exemptions and Rates. The amount that an individual may pass free of federal estate taxes is currently $3.5 million. Current law allows an unlimited amount to pass estate tax free in 2010, and reduces the amount to $1 million in 2011. However, anticipated estate tax reform will likely fix the exemption at $3.5 million going forward. The federal government also imposes taxes at a flat 45% rate, which is not expected to change.

Lifetime Gift Exemption. Although an individual can currently pass $3.5 million free of estate tax upon death, the same amount cannot be given away during lifetime without incurring a gift tax. The lifetime gift exemption remains at $1 million (in excess of the annual exclusion, tuition and medical gifts).

Generation-Skipping Transfer Tax Exemption. In order to ensure a death tax at each successive generational level, a generation-skipping transfer tax is imposed on transfers to grandchildren or more remote descendants at the top estate tax rate. However, the same amount that can pass free of estate tax ($3.5 million) can pass generation-skipping tax-free to grandchildren and more remote descendants.

Maximizing the Potential Benefits of Your Exemptions. The combination of the recent market declines (which present an opportunity to transfer assets to your descendants at substantially reduced, if any, tax cost), the low interest rates (creating opportunities to leverage tax savings), and the changes in the law allowing increased amounts to pass estate and gift tax-free at death and/or during lifetime make this an opportune time to revisit these issues. As everyone knows, the economy moves in cycles. Eventually (hopefully) values will increase again. When they do, the opportunity to reduce, or even eliminate, your transfer taxes on such favorable terms may be gone.

Assets with "temporarily" depressed values due to the current economic conditions, but whose values are expected to recover, would be good targets for a giving program. Based on the current applicable laws, the increase in value when the economy recovers and the appreciation thereon would pass to the donees gift tax-free. The lower current applicable federal interest rates also make gifting through a grantor retained annuity trust (GRAT), a charitable lead trust (CLT), intra-family loans, and the sale to grantor trust technique even more beneficial.

Gifts in Trust. Despite the tax savings, many individuals are uneasy about making outright gifts to their descendants. Such concerns can usually be addressed by structuring the gifts in trust, which will allow you to determine how the assets will be used and when your descendants will receive the funds. The use of gift trusts can also provide the beneficiaries with a level of creditor protection (including protection from a divorcing spouse) and additional transfer tax leverage.

Charitable Distributions from IRAs. During 2006 and 2007, individuals age 70� or older were allowed to donate up to $100,000 from their individual retirement accounts (IRAs) to qualified public charities (not including donor advised funds or private foundations) without including these distributions in taxable income, but qualifying toward the required minimum distributions for the year donated (prior to 2006, gifts from IRAs to charities were treated as taxable distributions to the donor, with the income tax on such not necessarily being offset entirely by the charitable deduction). The $700 billion Emergency Economic Stabilization Act of 2008 renewed for two more tax years (2008 and 2009) this favorable income tax treatment afforded to direct charitable gifts from IRAs.

Prepare for Roth IRA Conversions. Individuals who have not been able to contribute to a Roth IRA because of income limitations will have a prime opportunity starting in 2010, when anyone, regardless of income, will be allowed to convert their regular IRA to a Roth IRA. Planning for such a conversion should begin now. Individuals who are not currently eligible to make Roth contributions may want to consider contributing to a regular or nondeductible IRA so that these amounts can be converted to a Roth IRA in the future. Individuals who currently qualify for a Roth conversion, but have not done so, may be able to take advantage of the market decline by converting their regular IRA to a Roth IRA at a much lower tax cost than would have been possible when stock market values were high.