The Unified Gift and Estate Tax Rules

In states like California where real estate valuations tend to run high and also inflate rapidly, it is especially important to be aware of estate tax laws and keep up with changes to them. In 2015, the federal estate tax exclusion is set to go up from $5.34 million to $5.43 million. In 2011, the exemption was set to $5 million. Since then, it has been adjusted annually to account for inflation.

Although the annual gift tax exclusion is indexed to inflation, the rate of inflation was too low to impact it in part because it is rounded down to the nearest $1,000 increment. Thus, it remains at $14,000 just like it was in 2014. There are some things that are excluded from both gift and estate taxes. These include charitable donations, bequests to the spouse, and direct payment of education or medical expenses to another individual. Direct payment means paying the institution, such as a college or hospital, instead of giving it to the individual whose bills are being paid.

In the past, complicated trust structures were often used to get around problems with the tax code. However, thanks to changes in the tax code, this is no longer necessary. A surviving spouse can now make use of the deceased spouse's exemption amount, even if it was not used originally. In some cases, that effectively doubles the total available exclusion.

Due to these changes, couples with documents written up prior 2013 may need to review them and have them updated. Some of the kinds of documents that should be reviewed periodically to make sure they are current with all applicable laws and still serving the best interests of all concerned parties include wills, deeds, trusts and powers of attorneys.


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