Taxes related to your estate are some of the most complex in the entire tax code. Why are they so complex? According to "Sutton's Law," named after famous bank robber Willie Sutton, "That's where the money is."
Consequently, it is only prudent that you apprehend some of the basic laws impacting your estate so you can safely navigate them.
A recent Motley Fool article, titled “Estate Tax in 2015: 4 Rules You Should Know,” can help you jumpstart your estate tax education.
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 United States has a unified gift and estate tax system. As a result, if you make taxable gifts during your lifetime, then you will use up some of this $5.43 million in advance. Even though you will not have to actually come up with funds to “pay” a gift tax at the time you make the gift, you will need to file a gift tax return.
Gift or estate tax? The estate tax laws have rules making certain types of gifts and bequests non-taxable. Take the marital deduction as an example. This deduction allows spouses to give as much as they wish to one another without any gift or estate tax consequences. Similarly, charitable donations are not subject to taxation, either through your estate or as lifetime gifts.
You can also make gifts for educational expenses or medical expenses in an unlimited amount without any estate or gift taxes. However, you must pay the institution directly, rather than sending money through the family member or other person who incurred those educational or medical expenses.
Otherwise, you will be denied this special exclusion and your generousity will be counted toward your $14,000 annual gift exclusion for the person whom you are benefitting. As noted earlier, any amount over your annual gift exclusion will reduce your unified estate and gift exemption and require you to file a gift tax return.
I told you this stuff was complicated.
Double your estate tax exemptions if you are married. If you are married, the typical estate plan involves leaving everything to your surviving spouse. In the past this meant forfeiting the estate tax exemption available in the estate of the first decedent spouse. Now, however, with the new "portability" laws a surviving spouse can "inherit" the unused estate tax exemption of the deceased spouse.
While portability has been a permanent part of the estate tax laws since 2013, you should have your estate plan reviewed to make sure it remains an option for your estate and changes can be made if out-of-date.
There, that is an overview of some practical estate planning pointers. Be sure to consult an experienced estate planning attorney and discuss these issues in the context of your unique circumstances.
Remember: “An ounce of prevention is worth a pound of cure.” When making your financial, tax and estate plans, do not go it alone. Be sure to engage competent professional counsel.
For more information about estate planning in Overland Park, KS (and throughout the rest of Kansas and Missouri) and to download free tools to help you organize your estate, visit my estate planning website.
Reference: Motley Fool (December 28, 2014) “Estate Tax in 2015: 4 Rules You Should Know”