Care needs to be taken to minimize the amount of taxes that will be paid either through gifting or inheritance. Gifting is one of a number of tax exemptions individuals can use to reduce the amount of estate taxes.
There are two federal taxes that an estate can be subjected to when an individual dies: (1) estate tax; and (2) Generation Skipping Tax. Obviously states like Minnesota will also impose their own separate estate tax.
It’s important to understand the federal exemption amount when setting up one’s estate. This is the amount that can be given to an individual by the estate without triggering the federal tax.
Individuals can also pay $14,000 per year to recipients without this going towards the gift-tax exemption. Couples can combine this amount and give away $28,000 per person without this going towards the $5.34 million gift-tax exemption. The appreciation on that amount gifted could also be free of an estate tax.
It must be remembered that a variety of professionals may provide financial suggestions while being unable to legally provide tax advice. Financial advisors do not have the same qualifications as attorneys and thus their advice will be necessarily limited.
Estate planning attorneys, on the other hand, can provide advice as to the transferring of assets to one’s heirs in a tax-efficient manner. These attorneys can advise on the use of a number of estate planning tools and provide clients with an idea of the overall advantages and disadvantages concerning each of these tools.
Source: Consumer Electronics Net, “Gifting Can Be a Powerful Tool To Help Minimize Estate Taxes, says Atlantic Trust,” May 22, 2014