Estate planning is a process of arranging disposal of an estate (assets) upon death. People don’t like to talk about it, but it is necessary strategy and actually quite simple to develop a course of action which is best suited to your situation. Did you know that maximum estate tax rate in 2012 was 35%, but in 2013 and 2014 it increased up to 40%. You cannot take it with you to the grave, but surely you can plan ahead and make it difficult for Uncle Sam to take the lion's share of your legacy away from your loved ones. We at IBA Tax Group can help you organize your estate and provide peace of mind to you and your heirs.
We can help assess your true financial "value", because you might be shocked at how much your government thinks you are worth. You must include the value of the life insurance you own, even though the proceeds go to someone else. Once you have calculated your financial "worth", you can determine if you have an estate problem. Simple planning may save you and your loved ones many heartaches and much money over the years.
Estate and Gift taxes are closely related because you can use gift exclusions in planning your estate disposal. In 2014 you can gift $14,000 to each recipient per year without triggering the gift tax rate. If you gift together with your spouse, you can give away tax-free up to $28,000, per recipient, per year. And recipients don’t have to be related to you, nor do they pay tax on the gift.
In addition to the annual exclusion amounts, you also can give the following without triggering the gift tax:
- Charitable gifts
- Gifts to a spouse
- Gifts to a political organization for its use
- Gifts of educational expenses. These are unlimited as long as you make a direct payment to the educational institution (for tuition only). Books, supplies and living expenses do not qualify.
- Gifts of medical expenses. These too, are unlimited as long as they are paid directly to the medical facility.
In estate planning, you also must consider the unified credit. It gets its name because the federal gift tax and estate tax are integrated into one unified tax system.
This is the credit for the portion of estate tax due on taxable estates. For example, if you exceed the annual gift tax exclusion amount in any year, you can either pay the tax on the excess or take advantage of the unified credit to avoid paying the tax. The unified credit enables you to give away $5.34 million (as of 2014) during your lifetime without having to pay a gift tax.
As with any plans you make, they should be compatible with your lifestyle and the manner in which you desire to leave your estate. The best plan will not work if you are not comfortable with it and do not ultimately follow the plan. Call IBA Tax Group now for a confidential evaluation by one of our experienced professionals.