Estate tax exemptions and rates in 2015

California residents may be aware that supporters and opponents of the federal estate tax have been engaged in a contentious debate. Those in favor of the measure say that these taxes help to reduce income inequality, but those who object to estate taxes believe that they amount to an unfair double taxation of the wealthy. While federal estate tax rates in 2015 range from 18 percent to 40 percent, the lifetime exemption means that estate taxes collected will generally be based on the highest rate.

According to the tax tables, the 40 percent tax rate only applies to estates valued at $1 million or more, but an estate tax exemption of $5.43 million is available to individuals in 2015. The exemption was $5 million when it was introduced in 2010, but it is adjusted every year according to inflation. The exemption allows assets to pass to heirs untaxed.

Some individuals may look at these exemptions and come to the conclusion that estate taxes are not something that they need to worry about, but a tax rate of 40 percent could make such thinking risky for those with assets like real estate that could appreciate significantly over time. One way to reduce estate tax liability is making gifts. Annual gifts of less than $14,000 per recipient are not counted against the lifetime estate tax exemption, and there is no limit on how many gifts can be given.

An experienced estate planning attorney may show how a comprehensive plan can provide benefits even in situations where estate taxes are unlikely to be a factor. Living wills and health care directives can take pressure off close relatives during difficult times, and trusts may prevent conflicts developing between heirs while avoiding the public scrutiny associated with probate. An attorney may also recommend the use of certain types of trusts for individuals concerned about estate taxes.

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