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Gierach and Gierach, P.A Gierach and Gierach
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Orlando Gift & Estate Tax Planning Lawyer

For the most part, the estate and gift tax only affects people with very large estates. However, without careful planning, even smaller estates can come into contact with the estate tax, and an estate can be heavily taxed to the detriment of the estate’s intended heirs and beneficiaries. Also, the estate tax changes every year, sometimes quite dramatically from one year to the next. If you own a sizeable estate in Florida, or if you own or inherit property from another state that has its own estate tax or inheritance tax, it is important to consider the estate and gift tax in your planning. Learn more about the estate and gift tax below, and contact Gierach and Gierach, P.A. for advice and assistance from knowledgeable and experienced Orlando estate tax planning lawyers.

What is the estate and gift tax?

In one way, the estate tax and the gift tax are two separate taxes – one applies to gifts made during your lifetime, while the other attaches to the estate you leave behind. Estate and gift tax planning are often considered together, however, because Congress exempts a certain amount from taxation, and this amount is a unified amount. In other words, if your lifetime gifts and the value of your estate together exceed the applicable exemption, the overage is subject to tax. We’ll look at each tax separately first, then talk about the unified tax and how effective estate and gift tax planning can avoid the tax in many instances.

Gift Tax

The maximum allowable gift for tax purposes is $14,000 per person per year. A married couple can gift double that amount, or $28,000 per year, without any tax consequences. However, any gift over $14,000 by an individual or $28,000 by a couple must be reported to the IRS and is subject to the gift tax, with certain exceptions.

Charitable gifts are not taxable even if they exceed the threshold amount, and neither are interspousal gifts. Certain other payments which could otherwise be considered gifts are also exempted from the gift tax, even if they cause the total gift amount to go over the threshold. These exceptions include paying another’s medical expenses or school tuition, when the payments are made directly to the medical provider or educational institution. If your heir has such educational or medical costs, paying these expenses is one way to benefit the individual while avoiding the gift tax.

Estate Tax

For the 2017 tax year, the estate tax kicks in at $5.49 million. As with the gift tax, the exemption can be doubled for a married couple, bringing the threshold to $11.98 million excluded from tax. The taxable estate over the exclusion amount can be taxed as heavily as 40%, however, so careful planning is important to avoid this sizable hit to the estate.

The exclusion amount was recently doubled under the Tax Cuts and Jobs Act, so for 2018 an individual can exclude about $11.2 million, and a married couple can through planning exclude twice that amount from the estate tax. The exclusion amount will change every year as it is adjusted upward for inflation, but in 2025 the law will sunset, and the exclusion amount will revert to 2017 tax year levels, adjusted for inflation.

Avoiding the Unified Estate and Gift Tax

As gifts are reported to the IRS during one’s lifetime, they reduce the credit or exemption amount on the estate and gift tax. Planning for annual gifts is therefore as important as estate tax planning. Also, some states still have inheritance taxes on the books, including New Jersey, Pennsylvania and a handful of others. If you own property in another state with an inheritance tax, your beneficiaries could be liable for inheritance taxes to that state when they receive the property from you in your will.

One way estate planning can help avoid the estate and gift tax is through a credit shelter trust. In a credit shelter trust, spouse A designates assets up to the estate tax exemption to go into a credit shelter trust at death, while the remainder of Spouse A’s assets go straight to Spouse B or directly into a marital trust. The beneficiary of the credit shelter trust, who is usually the surviving spouse, benefits from trust income or principal during his or her lifetime, and at that spouse’s death, the principal in the trust will go to heirs named in the original trust document without being considered as belonging to the estate of the surviving spouse.

This type of trust can keep estate taxes from being paid until the death of the second spouse, helping that spouse enjoy the full benefit of the estate. It can also help can protect the inheritance of children from a first marriage for an individual who has remarried or if a surviving spouse later remarries and divorces.

Also known as an AB trust or family trust, a credit shelter trust is just one way to avoid the estate tax while providing for your spouse and simultaneously protecting an inheritance for your heirs. Another helpful tool is an irrevocable life insurance trust, which reduces the size of the estate subject to tax. Also, a charitable trust can be funded tax free.

Contact Our Orlando Estate & Gift Tax Lawyers for Thoughtful Advice

Careful and thorough estate planning can help you minimize taxes and probate while meeting all your needs for yourself and your heirs. For practical legal advice and professional assistance in avoiding the costly gift and estate tax, contact the Orlando estate planning attorneys Gierach and Gierach at 407-598-8013 for a free consultation.

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