The federal estate tax can be a very significant factor for high net worth families. This tax carries a 40 percent maximum rate, so the damage could be considerable if your estate is exposed. Fortunately, there are estate tax efficiency strategies that can be implemented if your estate is in taxable territory.
There is a certain amount that can be transferred before the estate tax would be applied. This figure is called the estate tax exclusion or credit. A $5 million benchmark was established for 2011, and since then, the exclusion has been adjusted annually to account for inflation.
This blog post is being written toward the end of 2015. Throughout the year, the exact amount of the federal estate tax exclusion has been $5.43 million. Recently, the Internal Revenue Service has announced the inflation adjustment for next year.
Since 2012, the inflation adjustments have been at least $90,000, but things are going to be different in 2016. The Consumer Price Index hasn’t changed significantly, so the adjustment will be just $20,000 next year. The 2016 estate tax exclusion will stand at $5.45 million.
We should point out the fact that there is a federal gift tax that exists to stop people from giving gifts to avoid the estate tax. The exclusion is a unified lifetime gift and estate tax exclusion. It applies to large lifetime gifts that you give along with the estate that will be distributed among your heirs after your passing.
There is another piece of information that we should pass along so that you have a full understanding of the implications. If you are an American citizen who is married to another citizen of the United States, you can use the unlimited marital gift and estate tax deduction. This deduction allows for unlimited tax-free transfers between citizen spouses.
The estate tax exclusion is portable between spouses. This means that a surviving spouse could use the exclusion that was allotted to his or her deceased spouse, but IRS Form 706 must be filed within six months of the passing of the decedent to opt for portability.
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Every family is different, and each case is unique. There is no cookie-cutter, one-size-fits-all estate plan, so we give each and every one of our clients truly personalized attention. If you decide to work with our firm, we will help you devise a custom crafted estate plan plan that is perfect for you and your family.
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