The estate tax exclusion is now $5.43 million. The federal estate tax applies only to those whose taxable estates exceed a certain amount. The U.S. has a unified gift and estate tax system, so if you make taxable gifts during your lifetime you'll use up some of this $5.43 million in advance. In addition, you will need to file a gift tax return even though you won't have to “pay” a gift tax at the time you make the gift.
The annual gift tax exclusion is still $14,000. This an annual exclusion makes most gifts nontaxable, so you can give up to $14,000 in cash or property to anyone again this year.
Gift or estate tax? The estate tax laws have rules that make certain types of gifts and bequests non-taxable, like the marital deduction. This deduction allows you to give as much as you want to a spouse without any gift or estate tax consequences. Also, charitable donations are not subject to tax—either in estates or as gifts during your lifetime. You can also make gifts for educational expenses or medical expenses in an unlimited amount without any estate or gift taxes.
A recent Motley Fool article, titled “Estate Tax in 2015: 4 Rules You Should Know,” reminds us that we need to pay the institution directly, rather than sending money through the family member or other person who incurred those educational or medical expenses. Otherwise, you don't get to use the exclusion and might have to file a gift tax return.
Double your estate tax exemptions if you’re married. If you're married, the typical estate plan involves leaving everything to your surviving spouse. Even so, the deceased spouse's benefits are available later to the surviving spouse even if they were left unused. This is useful for married couples because it can give the surviving spouse as much as double the total estate tax exclusion, saving couples as much as $2 million in tax liability. This “portability” has been a permanent part of the estate tax laws since 2013, but some folks have out-of-date documents with the old rules. Make sure you are taking full advantage of this.
Understanding the complexities of Tax Planning is just a part of successful estate planning. To ensure a successful plan, we at Idaho Estate Planning will: 1) educate you and your helpers; 2) take the time to get to know you, your family, your desires, your concerns, your goals, and your potential problems; 3) gladly and patiently answer questions until you understand the concept or issue; and, 4) based on experience with the problems and results caused by poor planning, help you design and implement the plan that fits your concerns and goals. Remember, good planning is no accident.