People who are in possession of considerable resources must be cognizant of the potential impact of the federal estate tax. This tax is currently applicable on asset transfers that exceed $5.43 million. This figure is called the estate tax credit or exclusion.
A caveat to the above would be that there is no taxation on asset transfers between spouses, because there is an unlimited marital deduction. The estate tax would only come into play if you transfer assets to others.
Though $5.43 million can seem like a lot of money, you have to understand the fact that your real property counts. In our area, there are farmers and other landowners who are in possession of a great deal of valuable property.
The maximum rate of the estate tax is 40 percent, so the tax can have a significant impact on the legacy that you are leaving behind for your loved ones to draw from.
Federal Gift Tax
The obvious reaction to the estate tax would be lifetime gift giving. Right after the estate tax was enacted in 1916, people would give gifts to their family members to avoid the estate tax.
This arrangement didn’t last long. There was a gift tax enacted in 1924. It was repealed in 1926, but it came back in 1932, and it has been in place ever since then.
The exclusion is a unified gift and estate tax exclusion. It encompasses taxable gifts that you give while you are living along with the estate that will be transferred to your heirs.
As a result, if you utilized all of your available exclusion giving tax-free gifts during your life, the entirety of your estate would be subject to the estate tax.
We should point out the fact that the unlimited marital deduction also applies to lifetime gift giving.
Annual Gift Tax Exclusion
In addition to the unified lifetime exclusion, there is also an annual gift tax exclusion. The first $14,000 that you give to any individual gift recipient within a calendar your could be transferred free of the gift tax.
You would be using a portion of your lifetime unified gift and estate tax exclusion if you gave a tax free gift to any one person in a calendar year that exceeded $14,000 in value.
Free Estate Tax Report
We have prepared an in-depth report that will tell you everything that you need to know about the estate tax. To get your copy of the report, click this link and follow the simple instructions: Free Report on Federal Estate Tax.
Schedule a Consultation
Our firm offers free consultations, and we would be glad to answer any question that you have about taxation or any other estate planning matter.
Send us a message through our contact page to set up an appointment: Grand Forks ND Estate Planning Attorneys.