If you are in possession of assets that exceed the federal estate tax exclusion amount, you may want to take steps to intelligently reduce the taxable value of your estate. One way to accomplish this objective would be to somehow utilize resources while you are still alive for the benefit of those that are on your inheritance list.
This is easier said than done because there is a gift tax in place. It is unified with the federal estate tax, and in 2014 there is a $5.34 million unified lifetime exclusion.
However, there is another gift tax exclusion that exists separate from the unified lifetime exclusion. It allows you to give up to $14,000 to any number of people free of the gift tax every year.
If you have a younger family member, you may want to consider using this $14,000 annual gift tax exemption to fund a 529 college savings plan.
These plans are offered by states, and the way that it works is you name a beneficiary and fund the account. The assets are invested, and the beneficiary receives distributions when he or she enters college.
If you limit your contributions to $14,000 per year, you can fund the account without incurring any gift tax liability. The way the rules are set up you could also make a single contribution of $70,000 and spread the gift over five years for tax purposes.
It should be noted that the growth of the account is not taxed assuming the beneficiary does wind up using the resources for approved college expenses.