Estate planning is a complex area of the law. There are many rules that can change from year to year and from state to state. The Motley Fool's article, "Estate Planning in 2016: Here's What You Need to Know," shares some of the must-know facts that will affect estate planning in 2016.
- The lifetime gift and estate tax exclusion amount is up to $5.45 million in 2016. The unified gift and estate tax credit allows people to make gifts during their lifetimes and to transfer estate property to heirs free of tax up to a certain limit. The lifetime exclusion is adjusted for inflation each year. For 2016, the amount is $5.45 million. Because of this, many people have a false sense of security that they don't need to do estate planning. However, the tax aspects are only a small piece of the entire strategy, which involves making sure your assets go to the people you want to have them.
- The annual exclusion amount for gifts remains at $14,000. Remember that you're allowed to give up to $14,000 to as many individuals as you want. You can make gifts on top of this amount to a spouse, as they aren't subject to annual limits. Gifts for medical care or education aren't taxable regardless of the amount, but you should transfer those funds directly to the institution rather than to the patient or student incurring the expense.
- The effective tax rate for the estate and gift tax remains at 40%. Any amount that's taxable for estate tax purposes is taxed at a 40% rate.
- Portability of the lifetime exclusion amount is still available. Since 2011, a surviving spouse is able to take advantage of any unused lifetime exclusion amount from the estate of the deceased spouse. This made estate planning much easier and gave married couples an easy way to take maximum advantage of both spouses' exclusion amounts. In 2016, portability allows couples to transfer $10.9 million of taxable property to heirs without estate tax.
- Don't forget about your state's gift and estate tax laws. In addition to the federal estate taxes, many states have their own gift and estate taxes. Some states have lifetime exclusion limits that are far lower than the current federal level.
Neglecting estate planning can be a costly mistake for your heirs. Stay on top of the changing rules and make sure your estate plan will achieve your intended purpose of helping your loved ones after you're gone.
Reference: Motley Fool (December 11, 2015) "Estate Planning in 2016: Here's What You Need to Know"