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Every year, the Internal Revenue Service provides updates to the amount individuals can set aside for their future or leave to their heirs tax-free. These guidelines allow for individuals to maximize ways to provide for their families now and after they are gone.
The 2015 federal estate tax exemption is $5.43 million per person. The 2015 annual gift exclusion is $14,000 per individual. These limits mean that someone can leave their heirs an estate worth up to $5.43 million or provide a gift, up to $14,000, to someone without paying federal taxes. An estate or any gift in excess of these amounts will be subject to federal taxes, which can be up to 40 percent.
The first step in estate planning is to understand the limits in order to best to maximize the estate for the family. The IRS allows for many different ways of sharing an estate with family, including providing gifts of tuition or medical expenses; annually gifting the maximum amount to many individuals; or gifting five years of annual exclusion gifts into a 529 college savings plan. Additionally, while the individual limit for an estate is $5.43 million, a couple can leave an estate worth up to $10.86 million tax-free.
Understanding the legalities of estate planning is critical in order to maximize a financial legacy. An attorney could help protect a client’s estate while they are alive as well as ensure that the estate is distributed in the way the individual desires. Unlike 19 other states, Florida does not impose a separate inheritance tax or real estate tax that simplifies the process. Taking the time now to create a plan for estate distribution can make the process easier.