Estate Tax 101

ProtectThe estate tax is one of the most complex parts of the tax laws, drawing a lot of controversy among Americans. Even as opponents label it an unfair death tax on already-taxed money, proponents believe it's one of the only ways of addressing rising inequality in wealth levels within the nation. Still, with the government collecting almost $12.7 billion from estate tax filings last year, it's worth your while to know enough about how estate tax rules change from year to year that you can avoid or minimize any tax you might owe. With that in mind, The Motley Fool gives us some rules you need to know about the estate tax for 2015.

The estate tax exclusion is now $5.43 million. The federal estate tax applies only to those whose taxable estates exceed a certain amount. The U.S. has a unified gift and estate tax system, so if you make taxable gifts during your lifetime you'll use up some of this $5.43 million in advance. In addition, you will need to file a gift tax return even though you won't have to “pay” a gift tax at the time you make the gift.

The annual gift tax exclusion is still $14,000. This an annual exclusion makes most gifts nontaxable, so you can give up to $14,000 in cash or property to anyone again this year.

Gift or estate tax? The estate tax laws have rules that make certain types of gifts and bequests non-taxable, like the marital deduction. This deduction allows you to give as much as you want to a spouse without any gift or estate tax consequences. Also, charitable donations are not subject to tax—either in estates or as gifts during your lifetime. You can also make gifts for educational expenses or medical expenses in an unlimited amount without any estate or gift taxes.

A recent Motley Fool article, titled Estate Tax in 2015: 4 Rules You Should Know, reminds us that we need to pay the institution directly, rather than sending money through the family member or other person who incurred those educational or medical expenses. Otherwise, you don't get to use the exclusion and might have to file a gift tax return.

Double your estate tax exemptions if you’re married. If you're married, the typical estate plan involves leaving everything to your surviving spouse. Even so, the deceased spouse's benefits are available later to the surviving spouse even if they were left unused. This is useful for married couples because it can give the surviving spouse as much as double the total estate tax exclusion, saving couples as much as $2 million in tax liability. This “portability” has been a permanent part of the estate tax laws since 2013, but some folks have out-of-date documents with the old rules. Make sure you are taking full advantage of this.

Talk to an experienced estate planning attorney and discuss these issues. Be prepared to handle estate tax issues if they come up in 2015.

For more information about estate planning, please visit my estate planning website.

Reference: Motley Fool (December 28, 2014) Estate Tax in 2015: 4 Rules You Should Know

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