Does it make sense to create a gift plan given the overall value of your estate? While circumstances will vary based on your personal situation, if you can afford to give property away to children or grandchildren now, it may be an excellent time to do so. Reducing your estate through annual gifts can lead to significant transfer tax savings over your lifetime.

Currently, by making use of the "annual exclusion" from federal gift tax, each person may give $13,000 annually to any person. This means that you can give up to $13,000 to each of your children, grandchildren, sons-in-law, daughters-in-law, nieces, and nephews each year – free of gift tax. If you are married, you and your spouse together can give up to $26,000 to any one person each year.

In addition, you can pay your children's or grandchildren's tuition and medical expenses (if such payments are made directly to the educational or health care institution) free of gift tax – and this amount does not count toward the annual exclusion amount described above.

If you have sufficient assets to give property away (and you are confident you will never need that property back), now may be an especially good time to give it if the property is currently under-valued. There are many ways to structure these types of transactions (through trusts or separate entities). You should discuss these options with your estate planning advisor.

Family Loans. In addition, now is an excellent time to make intra-family loans as the interest rates that you must charge to the borrowing relative are at historic lows. In this economy, some of your family members may have a greater need for financial help than ever before. But be wary of the gift tax implications of simply giving or "loaning" assets to family members without adequate documentation. It is extremely important to prepare loan documents that include a stated interest rate to avoid interest imputation rules and to have loans respected as loans rather than gifts.

Charitable Planning. If you are less inclined to make charitable contributions in this economy, you may have some interest in adding a charitable bequest to your will instead. In addition, your estate planning advisor can describe methods that allow you to retain an interest in property you give away (if you do not feel you can afford to give an asset away completely but you do wish to support one or more charities).

Insurance. It is not a good idea to cut property, liability or casualty insurance limits now – in times of economic hardship and uncertainty, potential claimants may be more inclined to pursue insurance claims. In addition, if you have life insurance to provide for your loved ones in the event of your death or to help defray the cost of estate taxes, now is not the time to reduce the amount of your insurance unless, after a careful evaluation, you conclude that your family will not need the life insurance proceeds.

During tough economic times, it is more prudent to take charge of your planning than to ignore it. Planning and preparing now will make it easier on your family later.

Chris Tate is an attorney who recently moved his practice from Washington, D.C. to Middleburg, Virginia who contributes an Estate Planning column to the Middleburg Eccentric. He has been practicing wills, trusts, estate planning and individual tax law for 11 years, in D.C. and Virginia firms. Chris is licensed in Virginia and Washington, D.C. Chris' office is located at 207 E. Marshall Street in Middleburg, and he may be reached by telephone at (540) 687-4073 or by e-mail at ctate@cftatelaw.com.