Gift and estate tax exemptions projected to rise in 2016

California residents should be aware that the estate tax exemption is projected to rise to $5.45 million in 2016. Married couples would be able to shield up to $10.9 million in combined assets. In 2015, the exemption was $5.43 million or $10.8 million for married couples and the tax rate was 40 percent.

Married couples may use some or all of their spouse's exemption due to a concept called portability. However, this must be declared when filling out estate tax paperwork Otherwise, the government will assume that each spouse is using his or her own exemption. Individuals should also be aware of the unlimited marital deduction that applies when an individual passes on and leaves everything to his or her surviving spouse.

It is important to note that any gifts made by individuals during their lifetime may count against this exemption. However, as it is tied to inflation, it may be possible to make additional gifts without going over the exemption limit. Currently, individuals can make gifts of up to $14,000 per person before they start to dip into their estate tax exemption. Those who make gifts to minors under the age of 23 may have to pay taxes on gifts totaling more than $1,050 in 2016.

Understanding gift and estate tax exemptions may prove useful for estate planning. Individuals may wish to talk to an attorney about how to use portability provisions or other gifting methods to reduce their estate's taxable income. It may also be possible to put assets in a trust to reduce an estate's tax burden or to help some or all of the estate avoid the need to go through probate. Legal counsel may help draft or store documents for convenience.

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