We serve clients in the Reno-Tahoe area, and there are many very successful people here. It is a good feeling to reach your financial goals and go forward with the knowledge that you will be able to leave a legacy for your loved ones to draw from after you are gone. This being stated, there is a looming threat that can have a negative impact on your family.
There is a federal estate tax in the United States, and the maximum rate is a whopping 40 percent. Some states in the union impose state-level estate taxes, but fortunately, here in Nevada there is no state estate tax. However, if you own valuable property in a state that does have its own death tax, it could be a factor for you.
The majority of Americans do not have to worry about the federal estate tax, because there is an exclusion that is relatively high. This is the amount that you can transfer before the estate tax would be applied. In 2011, a $5 million exclusion was established, and this figure was retained with adjustments to account for inflation through 2017.
During that year, new tax legislation was enacted, and the estate tax was impacted significantly. The exclusion went up to $11.18 million for 2018, and this is the benchmark under this law. Now that the new year is upon us, we have a slightly higher figure, because an inflation adjustment has been added. The federal estate tax exclusion in 2019 is $11.4 million.
It is important to note the fact that this is a per person exclusion, so a married couple would have a total exclusion of $22.8 million using the figure that is in place this year. Plus, the estate tax exclusion is portable between spouses. This was not the case prior to 2011. In this context, the term “portability” refers to the ability of a surviving spouse to use the exclusion that was allotted to his or her deceased spouse.
2019 Gift Tax Exclusion
When you hear about the existence of the federal estate tax, you would logically consider lifetime gift giving as a way to get around it. This used to be possible shortly after the enactment of the tax in 2016, but the gift tax was put into place in 1924 to close the loophole. It was repealed in 1926, but it came back for good in 1932.
The gift tax the estate tax are unified under the tax code. This means that the $11.4 million exclusion that we have in 2019 is a unified exclusion that encompasses lifetime gifts along with the value of your estate. For this reason, large gift giving is not an effective estate tax efficiency strategy.
In addition to the unified gift and estate tax exclusion, there is a separate annual gift tax exclusion. This allows you to give a certain amount to any number of individuals every year free of the estate tax. It is sometimes adjusted to account for inflation as well, but there will be no changes in 2019. The annual gift tax exclusion is $15,000 per person, so a married couple would have a total annual exclusion of $30,000.
If you are exposed to the estate tax, the utilization of this annual exclusion could be useful to you. To provide an example, let’s say that you have five married children. You could give $30,000 to each husband and each wife every year. This would allow you to divest yourself of $300,000 annually tax-free.
If you are on this website, you must be looking for sound information about estate planning and elder law topics. You are definitely in the right place, because we have many resources here, and you are welcome to explore the site and take advantage of the written materials.
In addition to this, we go the extra mile to provide learning opportunities to members of our community. Our estate planning attorneys hold Webinars on an ongoing basis, and you can learn a lot if you attend one of these sessions. There is no charge at all, but we do ask that you register in advance so that we can save your seat. To get all the details, visit our estate planning Webinar page.