All assets must be identified and valued as part of the probate process

The gift and estate tax has been as high as 55 percent in recent years

American Taxpayer Relief Act of 2013, or ATRA, permanently set the tax rate at a

maximum of 40 percent

Careful estate planning can decrease, or eliminate, exposure to gift and estate taxes

John and Anna are married

John recently died

John left behind an estate valued at $4 million – less than his lifetime exemption limit

John made gifts during his lifetime totaling $2.25 million – bringing his total gifts to $6.25 million

$1 million of John’s estate is subject to federal gift and estate taxes

John’s estate would owe $400,000 in taxes ($1 million x 0.40 = $400,000)

John can leave his $44 million estate to Anna and avoid gift and estate taxes

John has then only used $2.25 million of his $5.25 million lifetime exemption as a result of gifts he made during his lifetime

This could over-fund Anna’s estate

Assume that Anna also has $4 million in separate assets – she now has an estate valued at $8 million -- $2.75 above her lifetime exemption limit

Even if Anna made no additional gifts during her lifetime, her estate would now owe $1.1 million in gift and estate taxes when she dies ($2.75 million x 0.40 = $1.1 million)

Anna may combine the unused portion of John’s lifetime exemption with her own exemption for a total exemption of $8.25 million ($3 million + $5.25 million).

If Anna’s estate does not grow she can avoid gift and estate taxes because her estate’s value of $8 million is less than her total exemption of $8.25 million

Allows a taxpayer to make as many gifts as he/she wishes valued at up to $14,000 each year to as many recipients as he/she wishes without incurring gift and estate taxes

Gifts made using the annual exclusion do NOT count toward the lifetime exemption limit

Married couple may use “gift-splitting” to double value of a gift

Anna could use it after John’s death

Anna and John could have used it prior to his death

If Ann and John have 4 children and they used the “gift-splitting” option to gift to all four children for ten years they could have transferred $1.12 million tax-free. ($28,000 x 4 x 10 = $1.12 million)

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