Estate Planning - Estate Taxes
The federal government imposes a “transfer tax” on any transfers between two people – during lifetime or death. Any gifts during lifetime are called gift taxes and any bequests at death are called estate taxes. The top tax rate is now 40% of any transfers over a certain amount – the only exceptions are as follows:
- Marital gifts. Any gifts between spouses (assuming the surviving spouse is a US citizen) are not taxed, but are exempt- whether made during lifetime or death.
- Charitable gifts. Any gifts to charity are exempt from transfer taxes.
- Lifetime annual gifts. Anyone may make gifts of $14,000 per year to any individual during lifetime. This is an annual privilege, and if not used during a calendar year, the gift lapses – use it or lose it.
- Estate tax exemption. Any US citizen is also entitled to give, during lifetime or death, a one-time amount of $5.43 million (as of 2016). If one’s total estate assets is less than that, then no estate tax will be assessed at death, and if one’s estate is in excess of that, the top tax rate is 40%. That tax, if applicable is due and payable nine months after death – in cash. Thus, if one’s estate consists mainly of real estate, business or other illiquid assets, this can often lead to a so-called “fire sale,” to raise money to pay taxes. Anyone can include tax-saving trusts in his or her will to minimize or save these estate taxes.