Estate planning and the federal gift tax

California residents going through the estate planning process may not be aware of how gift taxes can affect them. The federal gift tax and the federal estate tax are intrinsically linked. Gifts over $14,000 count against the estate tax exemption to prevent people from giving away their entire estates immediately before death.

Currently, the exemption amount is $5.43 million. Married couples have the option to combine their lifetime exemptions. Nonetheless, making gifts requires careful planning to ensure that they are not resulting in adverse tax consequences. The 2015 estate and gift tax rate is a maximum of 40 percent, and the giver is the one who is required to pay the gift tax. For spouses, there is an unlimited marital deduction that allows gifts between spouses to pass free of taxation regardless of the amount.

The annual gift tax exclusion is $14,000 per recipient, meaning that an estate holder may make gifts to many people as long as each gift totals $14,000 or less. Married couples who split gifts may receive a $28,000 annual gift tax exclusion. It is worth noting that married couples who combine their gift tax exclusion must notify the IRS of this. Large estates whose owners wish to make significant gifts may incur large tax penalties if they are not aware of current regulations.

Those people who make large gifts as part of their estate planning process may benefit from consultation with an estate planning lawyer. Without proper planning and awareness, gift tax exemptions may diminish the estate tax exemption, and a lawyer can discuss with a client other ways in which federal and state taxes can have an impact on the process.


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