Before we provide you with more information, let’s review estate taxes. The government imposes a tax on individuals at death when assets are transferred to heirs, known as estate tax. However, the total value of the estate needs to exceed certain levels (exemption level) for the tax to be applied. As wealthy individuals age, a major financial objective is to reduce their estate enough that it is below the exemption level, thus avoiding the feared estate tax. Therefore, the most common way individuals remove assets from their estate is by gifting them to family and friends, often the people that will ultimately receive their assets at death anyways.
In an effort to prohibit individuals from rapidly depleting their estate in order to avoid estate taxes as death becomes more evident, the government established the annual gift exclusion. This exclusion limits the amount of money that may be transferred to another person each year.
For 2014, that limit is $14,000 ($28,000 for married couples). Although you can transfer $14,000 to as many people as you wish, you can only transfer $14,000 to each without incurring a gift tax. Gift tax is imposed on assets that are gifted to others, exceeding the annual exclusion. A gift tax return must be filed in the year in which a gift to a specific individual exceeded the limit. At death, all of these “taxable gifts” are added back to your estate, which may cause your estate to exceed the exemption amount, leading to an estate tax liability.
There are numerous ways for individuals and families to reduce their estate. We have the necessary knowledge and can implement strategic techniques (including, but not limited to gifting) for you to minimize or eliminate the dreaded, and often substantial, estate tax liability. In addition, we have several relationships with trusted estate planning attorneys who assist us in navigating the constantly changing estate planning landscape. You worked hard to accumulate your wealth. Let us protect that wealth so your beneficiaries are not left with a fraction of what you intended.