Skip The Estate Tax With The 2016 Gift Tax Exclusion

gift tax exclusion

The gift tax exclusion can be used to avoid taxes on your estate, but taking advantage of it requires careful planning. Here’s what you need to know in order to benefit from the gift tax exclusion this year:

Only those individuals leaving behind an estate exceeding $5.45 million are faced with the prospect of estate taxes. Even if your assets exceed this threshold, it’s still possible to reduce or eliminate this tax by planning ahead. The annual gift tax exclusion permits you to pass assets down to your heirs tax-free while you’re still alive.

How Estate And Gift Taxes Work

The IRS provides a tax credit known as the lifetime exemption – allowing you to leave the first $5.45 million of your estate to your heirs, tax-free. This includes property, financial accounts, and taxable gifts you give while you’re still alive. Estates valued at $1 million and above are subject to the highest estate tax bracket, meaning that any taxable portion of the estate is taxed at the maximum rate of 40%. Since each spouse has a separate lifetime exemption, a married couple can bequeath up to $10.9 million to their heirs – exempt from federal estate and gift taxes. Many states also impose their own inheritance taxes, often with a much lower exemption than the one provided by the IRS.

The Gift Tax Exclusion

Thanks to the heavy tax burden imposed on estates valued above $5.45 million, proper estate planning is crucial for high net worth families. The gift tax exclusion permits you to give up to $14,000 per person without reducing your available lifetime exemption, and your spouse may do the same. If your gift exceeds this amount, only the excess reduces the lifetime exemption. While you’re required to file IRS Form 709 to report the gift, you won’t need to submit tax payments, since the taxable portion will simply be added to the value of your estate.

The Future Is Uncertain

The future of the estate tax is unclear, so the best you can do is to plan ahead based on what we know now, while remaining flexible enough to adapt to changing circumstances. If estate taxes increase, giving away a larger percentage of your wealth now will shelter it from those higher taxes. On the other hand, if the estate tax is eliminated, your loved ones will no doubt still appreciate your gifts.

At Werba Rubin, we’re committed to helping you achieve your financial goals, including wealth preservation. Contact us today find out how to help maximize your estate tax savings through comprehensive solutions designed to meet your needs.

The information herein is general in nature and should not be considered insurance, legal or tax advice.  Please consult with an insurance, legal or tax professional for additional information on specific situations.    

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ADVISOR SERVICES THROUGH WERBA RUBIN ADVISORY SERVICES, LLC.SECURITIES THROUGH LORING WARD SECURITIES INC., MEMBER FINRA/SIPC # (04/10) © 2016 WERBA RUBIN ADVISORY SERVICES, LLC (WR 16-018)

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