As we enter into 2014, it is important to note some changes that have been made to the current estate and gift tax exclusions. Modifications of estate and gift tax exclusions are generally made every year (or whenever Congress deems it prudent) in order to adjust for inflation by using the preceding year’s Consumer Price Index data. The following list provides notable changes that affect estate planning and tax-free gifts.
Unified estate and gift tax exclusion amount has increased to $5,340,000
Good news! The unified estate and gift tax exclusion amount has increased by $90,000. The exclusion amount has increased from $5,250,000 to $5,340,000. This means that estates of those who pass away after January 1, 2014, and that are under the $5,340,000 increased threshold, will not incur an estate tax. The new $3,340,000 figure will also be applied to the generation-skipping transfer tax exemption thereby allowing the transfer of estate assets to skip a generation without incurring an estate tax. However, the bad news is that with the new year, also brings a higher tax rate for those estates that exceed the new exemption limit. In 2014, a 5% increase in the tax rate on estates in excess of the exclusion amount will incur a 40% tax, up from 35% in 2013.
Gift tax annual exclusion will remain at $14,000
The gift tax annual exclusion for gifts made in 2014 will remain at $14,000. The exclusion does not include gifts between spouses, tuition or medical expense payments of another or charitable donations. However, parents may combine gifts to a child for a total exclusion amount of $28,000 to one child per year.
If you are fortunate enough to have an estate that may be affected by the estate and gift tax exclusions, it is important to know how tax exemptions can work to your benefit. Making certain lifetime gifts in order to avoid a federal estate tax down the line can ensure that your beneficiaries get the full enjoyment of your estate. Likewise, making too many sizable gifts can also incur a hefty federal gift tax. The attorneys at Alavi & Broyles are experienced in advising those with sizable estates in the best course of action with the best return for their individual needs.
Max Alavi focuses on assisting clients establish effective and secure vehicles for passing their assets to their loved ones and protecting their families from the uncertainty and expense associated with probate and testamentary guardianship matters. He is also dedicates a significant portion of his practice to complex probate matters, trust administration and litigation of contested trusts.
Max Alavi, Attorney at Law, APC has 6 locations in Orange County and Los Angeles County, California