Ask a Trust Officer: When do Federal Estate and Gift Taxes Kick In?
DEAR TRUST OFFICER:
What’s the story with estate and gift taxes? Do I need to worry?—AWARE OF TRANSFER TAXES
Most people don’t need to worry about estate and gift taxes, but for those who do, it can be a very important worry indeed.
First, you have the annual exclusion from the gift tax, which is $14,000. That means you can give up to $14,000 to each of as many people as you wish, and you need not even file a gift tax return. Married couples can “split” their gifts, so that as a couple their annual exclusion is $28,000.
Second, the direct payment of qualified tuition or medical expenses is not considered a taxable gift at all.
Third, the exemption from federal estate taxes is $5.25 million in 2013, $5.34 million in 2014. Married couples can double this number as well.
Fourth, that same exemption is available for gifts that exceed the $14,000 annual exclusion. Although gifts up to $5.34 million are taxable, no tax will be payable until that threshold is crossed.
Finally, the available estate tax exemption is reduced to the extent that the lifetime gift tax exemption was used. If a donor made lifetime taxable gifts of, say, $2 million, his or her 2014 federal estate tax exemption is just $3.34 million. This figure is adjusted every year for inflation.
Don’t overlook state death taxes (inheritance tax, estate tax, or both). Although most states have abandoned their death taxes, those that retain them generally impose them at much lower wealth levels. Even if you live in a state without a death tax, you could be affected if you own real property in a state that continues to impose one.
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