ElderLaw News-The Estate Planning & Elder Law Firm, P.C. — MD, VA, DC
ElderLaw News
ElderLaw News is a weekly e-newsletter that brings you reports of legal developments and other trends of vital interest to seniors and their advocates. This newsletter is brought to you by The Estate Planning & Elder Law Firm, P.C., William S. Fralin, Esq., President., William S. Fralin, Esq., President.

Understanding Estate and Gift Taxes

Do the words "estate and gift taxes" raise your blood pressure, even just a little?

When meeting with clients, I’ve found that estate and gift taxes are often a source of anxiety – and confusion. Under current law, however, the vast majority of Americans have very little to worry about. Here’s an explanation in plain English.

As a general rule, using the 2015 numbers, you can transfer up to $5.43 million[ dollars during your life (as a gift), at your death (through your estate), or a combination of the two, without incurring federal estate or gift taxes.1 A married couple can transfer twice this much, up to a total of $10.86 million. To the extent that the total amount transferred exceeds $5.43 million ($10.86 million for a couple), the excess is taxed at a rate of 40%.

Chances are, you read that last paragraph and let out a sigh of relief, maybe even a chuckle. “So what about these $14,000 annual gifts I’ve heard about?” you might be asking. This question affects far more people. Current law permits you to make gifts to an individual totaling $14,000 or less in a single year without those gifts being counted towards your $5.43 million exemption. If you’re married, you and your spouse can make gifts to an individual of up to $28,000 per year. These gifts are not taxable income to the recipient, although the earnings on a gift, if invested, are. The number of recipients of these “annual exclusion” gifts is unlimited; individuals who believe they may transfer more than $5.43 million ($10.86 million if married) during their lifetime and/or at their death can use this to their advantage, to bring down the total value of their estate. 2

In the event that you make gifts to an individual exceeding $14,000 in any given year ($28,000 if you and your spouse make the gifts), you will be required to file a gift tax return with the IRS. No tax will be due, however, as a result of the filing; the purpose of filing the return is to record the amount transferred in excess of $14,000 ($28,000 if married). The excess is counted toward your lifetime $5.43 million exemption.

It should be noted that Virginia does not currently have estate or gift taxes. However, there is a small state tax on assets passing through your probate estate, if valued at more than $15,000 (10 cents for every $100, or 0.1%), and localities may impose a probate tax equal to 1/3 of the state probate tax.

Now, if you’re concerned that you may transfer more than $5.43 million total during your life and/or at your death ($10.86 million if married), there are strategies you should consider to help minimize, or even eliminate, taxes due at your death. An experienced estate planning attorney can walk you through the various trust and gifting options you may want to look at as a way to reduce the value of your estate and taxes paid at your death.

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1. This number increases a little every year to keep up with inflation.

2. Keep in mind, of course, that if you plan to apply for Medicaid in the future, gifts like this are subject to a five-year lookback period. However, if you’re gifting for the purpose of minimizing estate and gift taxes, you’re most likely not going to be applying for Medicaid.


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The Estate Planning & Elder Law Firm, P.C.

The Estate Planning & Elder Law Firm, P.C. is an elder law firm. We represent older persons, disabled persons, their families, and their advocates. The practice of elder law includes estate planning, estate and trust administration, powers of attorney, advance medical directives, titling of assets and designations of beneficiaries, guardianships, conservatorships, and public entitlements such as Medicaid, Medicare, Social Security, and SSI, disability planning, income tax planning and preparation, care management, and fiduciary services. For more information about The Estate Planning & Elder Law Firm, P.C., please visit our website at http://www.chroniccareadvocacy.com.

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This newsletter is not intended as a substitute for legal counsel. While every precaution has been taken to make this newsletter accurate, we assume no responsibility for errors, omissions, or damages resulting from the use of the information in this newsletter. The Estate Planning & Elder Law Firm, P.C. thanks the law firm of Hook Law Center for their input to this newsletter.

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