One of the most important objectives is avoiding unnecessary asset erosion. Estate planning is not as simple as arranging for assets to get from point A to point B. You want this to take place without losing anything in the process, and though it may seem as though there should be no reason why you would, there are sources of asset erosion looming. The most formidable one is the federal estate tax.
At the moment the estate tax exclusion is $5 million, and the rate of the tax is 35%. (The exclusion is set to go back to $1 million unless Congress takes action, but the current level is $5 million.) So the portion of your estate that exceeds $5 million will be reduced by more than one third as it is being transferred to your heirs if you don’t take steps to to protect it. One way that you can reduce the value of your estate for estate tax purposes while transferring assets to those you ultimately want to receive your assets is tax-free gifting.
The $5 million estate tax exclusion mentioned above is unified with the lifetime gift tax exemption. So, although you can give $5 million worth of gifts during your life tax-free, if you were to do this all of your estate would be subject to the estate tax.
There are however additional gift tax exemptions that can utilized that do not impact the unified estate/gift tax exclusion. One of these allows you to give as much as $13,000 per year to as many people as you want to as a gift, and these gifts are not subject to the gift tax.
Since this is a per person exemption, a married couple could combine their individual exemptions and give as much is $26,000 per year to each of their children or other heirs. A gift tax return may need to be filed, but no tax is due on these annual gifts. If you have questions about gift tax rules, please talk with an experienced estate planning attorney.
John’s practice focuses on the use of Wills and Living Trusts in Estate Planning to help individuals protect their families and preserve their legacies after their deaths, but his practice also focuses on the critical issues of protecting individuals with dementia or other diminished capacity, assisting individuals in qualifying for Medicaid and other government benefits to offset the costs of long-term care, and providing special needs planning.
John is admitted to practice law in North Carolina, South Carolina, Kentucky, and Ohio, and he is accredited by the Department of Veterans Affairs.
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