Essential Estate and Gift Tax Facts

Wednesday, August 2, 2017

A federal tax is imposed on the value of estates that exceed a statutory exclusion. That threshold of untaxed value is $5,490,000 in 2017. Estates worth more than that amount are taxed at a 40 percent rate. This means that a married couple with proper handling can have an estate of up to $10,980,000 with no federal estate tax. This is generous compared to previous thresholds and rates (except for 2010 when there was no estate tax). These numbers are indexed with inflation and 2018 may be slightly higher.

A several years back the lifetime gift exclusion was $1,000,000. Now the lifetime exclusion has been increased to $5,490,000. Under this provision a married couple may write checks to their children totaling $10,980,000 with no gift taxes. Of course this may not be the best way to transfer wealth. There are many different trust options that may be suitable. It is important to remember that once this exclusion is used in a gift it is no longer available to your estate.

The GST or generation skipping tax has been modified to these higher limits but that complex issue should be discussed with your accountants.

An important gifting consideration is also determining which assets are more likely to appreciate in value. Gifting of an asset that has been beaten down in value may offer the added benefit of future appreciation (with the caveat that future values can also depreciate).

Another factor to consider is your state estate tax. Some estates may be taxable under state law but not under federal amounts. Here is a link to a chart of various state rates.

The annual gift exclusions is $14,000 for 2017.Using this exclusion a married couple can give $28,000 to individuals per year without touching the lifetime exclusion. Even if you know your estate is not going to reach the level of taxability some gifting to your qualifying children can be financially wise because they will not be taxed on the first $1050 of investment income and then any amounts from $1051 to $2100 will be taxed at the child tax rate which is typically lower than the parents. Larger amounts are taxed at the parent’s tax rate. A qualifying child is under 19 years of age or children aged 19 through 23 who are full-time students and whose earned income does not exceed half of the annual expenses for their support.

As you can see there are many options available for tax planning. Rest assured we are experts in them. If you have any questions about gift and estate tax planning please call.

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