Re: the inheritance tax. We just got back from a homeschooling convention, and one of the speakers brought up this particular tax. He said that he’s giving his kids their inheritance early, tax free, by “gifting” them as much each year as he possibly can afford. I believe the limit is 10K a year (?) that you can give to someone without having to pay any tax. I’m not sure if he’s putting it into 529 plans or how he’s investing it, but it sounds like a good idea.
Regarding the Gift Tax, there are two levels of exemption from the gift tax. First, transfers of up to (as of 2006) $12,000 per person per year are not subject to the tax. An individual can make gifts up to this amount to as many people as they wish each year. A married couple can pool their individual gift exemptions to make gifts worth up to $24,000 per recipient per year without incurring any gift tax. Second, there is a credit that essentially negates the tax on gifts until a total of $1,000,000 has been given by one person to another.
Since 2006, the limit is $12,000 per person per year that is not subject to tax by the recipient. A married couple can gift $24,000.