Estate Tax Planning Strategies
Minimizing any taxes due after one's death is the goal of estate tax planning. Part of the strategy involves keeping up on any change in federal or state law. The most recent legislation to impact the federal estate tax, the American Taxpayer Relief Act of 2012 (ATRA), became law in 2013. For questions on estate tax planning, you should hire a College Station estate planning attorney.
Federal Estate Tax Exemption
The amount that can past free of tax was set at $5 million in 2010 and was made permanent by ATRA including a yearly increase for inflation. For 2014 the exemption is $5.34 million. In the past, there was a concern for married couples. The surviving spouse would automatically receive the decedent's estate, but when the survivor died the children could potentially face an estate tax from the combined value of the marital estate. This necessitated what was called an A-B trust to effectively double the federal exemption. This is no longer required due to the inclusion in the ATRA of the concept of portability. Portability in essence allows the surviving spouse to inherit the federal exemption of the deceased spouse, thereby increasing to $10.68 million the exemption for the marital estate.
Texas has no estate tax, paid by the estate based on its value and also has no inheritance tax, which is paid by the beneficiary of a gift from an estate.
One way to avoid estate tax is to make gifts during one's lifetime. Gifts made within the annual exclusion amount do not count against the lifetime gift tax exemption. For 2014, the annual gift exclusion is $14,000. The lifetime gift tax exemption has been unified with the federal exemption amount, meaning the lifetime amount is $5.34 million and any amounts in excess of the annual exclusion reduce the federal exemption dollar for dollar.
Where a generation is skipped in transferring property, as between a grandparent and grandchild for example, the ATRA has again unified this transfer with the federal exemption of $5.34 million.