The federal estate tax is not applicable on all postmortem asset transfers. One type of transfer that is not subject to taxation is a transfer between citizen spouses. If you are legally married in the eyes of the law, you can use the unlimited marital deduction to transfer any amount of property to your spouse free of the death tax.
There is also a federal estate tax exclusion that allows you to transfer a certain amount to others before the estate tax would kick in. Since 2011, the benchmark has been $5 million, with annual adjustments to account for inflation. After a series of adjustments, the exclusion for 2015 has been $5.43 million.
Now that we have reached the end of the year, the Internal Revenue Service has released the amount of the inflation adjustment for 2016. Another $20,000 will be added to bring the exclusion up to $5.45 million. In previous years, the adjustment has been at least $90,000, so this is a particularly small increase.
We should point out the fact that there is a gift tax in the United States that is unified with the estate tax. This exclusion is a unified lifetime exclusion. It applies to large gifts that you give while you are living, and it also applies to the estate that will be passed along after your death.
In other words, if you gave $5.45 million in tax-free gifts using this exclusion, there would be nothing left to apply to your estate. Your entire estate would be subject to the estate tax.
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When you are evaluating where you stand with regard to the estate tax exclusion, you have to include the value of any real estate that you own. Here in the greater Los Angeles area there is a great deal of very valuable property, so your home alone could consume a significant portion of your available exclusion when it is being transferred.
Plus, life insurance proceeds are also part of your estate for tax purposes.
If you have concerns about how taxation can impact your legacy, you should educate yourself thoroughly. We have prepared in-depth special report that you can download through his website if you would like to understand all the facts.
This report goes into detail about the estate tax parameters, but it also looks at the estate tax efficiency strategies that can be implemented. Even if you are exposed to the death tax, if you take the right steps in advance to position your assets wisely, you can preserve a maximum store of wealth for the benefit of your loved ones.
To get your copy of this comprehensive special report, which can be yours absolutely free of charge, click this link: Free Estate Tax Report.
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