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Estate planning may be needed for bequests and lifetime gifts

Estate planning in Texas and all other states includes determining how much you can give away in gifts at your death and how much you can gift during life without incurring federal tax consequences. For estate planning purposes, the federal estate tax now exempts $5.43 million in bequests that a person can give to others upon his or her death. For a married couple, it is the total of each spouse's $5.43 million that is  ultimately available. One spouse can bequest his or her unused portion of the exemption to the surviving spouse.

In the realm of federal estate taxes, only a small percentage of taxpayers will therefore actually have a federal estate tax bill at death. Additionally, during one's lifetime, a person can give away up to $5.43 million in gifts without owing a federal gift tax. The individual gifts, however, must be limited to under $14,000 for each gift. Gifts under that amount will not incur any federal gift taxes and will not reduce one's $5.43 million gift-tax exemption.

With a large estate, the $14,000 per year rule can be highly beneficial.  Making gifts just under that amount to each child each year will considerably reduce a person's taxable estate. This tactic puts the money in the children's hands where the tax rate will likely be significantly lower than that of the giver. This strategy can be particularly beneficial to the person who has started late in life to begin serious estate planning.

Thus, gifting amounts under $14,000 during life to one's children and also their children, can literally save millions in federal estate tax bills for residents of Texas and all other states. That is because the gifts during life that are under $14,000 do not cut into one's $5.43 million gift-tax or estate-tax exemptions, but they reduce one's taxable estate. Assets that are subject to a federal estate tax at death have a maximum rate of 40 percent, making this a valid estate planning exercise for those with large estates.

Source: marketwatch.com, "3 important things to know about estate planning", Bill Bischoff, Feb. 11, 2015

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