-
-
The federal gift and estate tax is essentially a tax on the transfer of wealth. Every estate is potentially subject to the federal gift and estate tax; however, every taxpayer is also entitled to an exemption. Federal gift and estate taxes are levied on the combined total of the value of all gifts made during a taxpayer’s lifetime and the value of all assets owned by the taxpayer at the time of death. Although the federal gift and estate tax rate fluctuated historically, the American Taxpayer Relief Act of 2012 (ATRA) permanently set the rate at 40 percent.
-
-
-
Every taxpayer’s estate is subject to federal gift and estate taxes. Some states also impose a state level an estate tax. Fortunately, Arizona is not one of those states. If you own property in another state, however, you would be wise to find out if that state imposes an estate tax because you need to factor that into your overall tax avoidance plan.
-
-
-
An estate tax is a tax imposed on the estate of a deceased individual. An inheritance tax is a tax imposed on an individual when they inherit assets. An estate tax must be calculated and paid by the estate using estate assets prior to any assets being passed down to beneficiaries or heirs. An inheritance tax is paid by the beneficiary or heir after those estate assets have been passed down. Few states impose an inheritance tax and Arizona is not among the states that do; however, just like estate taxes, you need to know if a beneficiary lives in an estate with an inheritance tax.
-
-
-
Each taxpayer is entitled to make use of the lifetime exemption to reduce the amount of gift and estate taxes owed by their estate. ATRA set the lifetime exemption amount at $5 million, to be adjusted for inflation each year; however, President Trump signed tax legislation into law that significantly increased the lifetime exemption amount for 2018 and for several years to come. These exemption amounts are scheduled to increase with inflation each year until 2025. On January 1, 2026, the exemption amounts are scheduled to revert to the 2017 levels, adjusted for inflation. The temporary increase in the lifetime exemption amount presents an opportunity for those with significant taxable assets to transfer more of that wealth without incurring taxes over the next few years.
-
-
-
Portability refers to a surviving spouse’s ability to use any unused portion of a deceased spouse’s lifetime exemption. For example, imagine that you are married, and your spouse passes away in 2022 leaving behind a taxable estate valued at $8 million. Your spouse would not need to use all his/her lifetime exemption ($12.06 million for 2022) so the remainder would “port” over to you. You would then be able to use your own exemption as well as the $4.06 million “ported” over to you from your spouse’s exemption when your estate is probated.
-
-
-
The annual exclusion is an extremely allows each taxpayer to gift up to $16,000 (as of 2022) in assets to an unlimited number of beneficiaries each year tax-free. Couples can gift-split and gift assets valued at up to $32,000. By way of illustration, a married couple could transfer $32,000 in assets each year to eight beneficiaries, for a total of $256,000 in assets transferred tax-free. Gifts made using the annual exclusion do not count toward a taxpayer’s lifetime exemption.
-
-
-
The value of your estate at the time of your death is a significant factor in determining tax liability. Making strategic gifts during your lifetime can reduce the value of your estate at the time of your death. Care must be taken, however, to make sure those gifts are not included in your taxable estate for the purpose of determining your federal gift and estate tax liability. Specialized trusts, paying medical and educational bills, and other strategies can incorporated into your estate plan to help you make lifetime gifts that further your tax avoidance goal.
-
Contact Us
If you have additional questions regarding tax avoidance planning within your estate plan, contact an experienced Phoenix estate planning attorney at Morris Hall PLLC by calling (888) 222-1328 to schedule a consultation.
