The IRS has released the 2016 estate and gift tax figures. The Estate Tax Applicable Exclusion amount will be $5,450,000 (2015 is $5,430,000). The top Federal Estate Tax Rate remains at 40%. And the Annual Gift Tax Exclusion remains at $14,000.
An estate plan is simply a set of legal documents that instruct your loved ones how to manage your assets when you pass away, and if you have young children, it identifies the persons you want to raise your children. It also authorizes the persons you choose to manage your assets and make health care decisions for you if you become incapacitated. An estate plan can also leverage your assets to reduce or eliminate estate taxes and capital gains taxes, and it can be structured to significantly protect the inheritance you leave your spouse and children from divorce claims and lawsuits.
As you can see, estate planning has to do with death and taxes, and as Ben Franklin said, “in this world nothing can be said to be certain, except death and taxes.” Since everyone will have to deal with death and taxes, everyone needs an estate plan.
The type of estate plan you need will depend on your family, your assets and your goals. At a minimum, you will need a will, which lays out who you want to receive your assets, a durable power of attorney, which names the persons you want to manage your affairs if you become incapacitated and an advance health care directive and HIPAA, which authorize the persons you want to make health care decisions for you if you can’t. If you own a home, you will also want a revocable living trust so your estate won’t have to go through probate.
The 2015 estate and gift tax exemption will be $5,430,000 per person, or $10,860,000 for a married couple. (In 2014, it was $5,340,000 per person.)
You won’t have to worry about an estate tax unless your estate value is greater than $5,430,000 if you are single or $10,860,000 if you are married. The 2015 estate tax rate will stay at 40% for estates in excess of the exemption.
The 2015 annual gift exclusion, the amount you can gift each year to anyone without using any of your lifetime gift exemption, will remain at $14,000 or $28,000 for a married couple.
Because of this big estate and gift tax exemption, almost all families are now exempt from the estate tax. According to the Wall Street Journal, only 3,700 estates will owe federal estate taxes in 2014.
However, that doesn’t mean you don’t need to do tax planning with your estate plan. Many families will still have to deal with the the capital gains tax. Good estate planning can reduce or eliminate the capital gains tax. I wrote about this here and here.
I spend a lot of time teaching my estate planning clients how to avoid probate and how to protect their children’s inheritance from divorce and creditor claims. In a nutshell, this is what I tell them:
If you establish a living trust and transfer your assets to the trust, your family will not have to experience the hassles and costs of probate when you and your spouse pass away. In addition, we can design your living trust so that when you both pass away, your assets can be allocated to separate lifetime protection trusts for each of your children to protect their inheritance from divorce and lawsuits.
You will not directly benefit from your estate plan. Why? Because you won’t be with us at that point.
But what if you could benefit from someone else’s estate plan? Yep. I’m talking about your parents. A surprising number of my clients tell me that their parent’s do not have an estate plan. There are many reasons for this, but usually it’s because they though estate planning was too expensive and complicated.
What if you offered to pay for your parent’s estate plan as a Christmas gift to them – knowing it’s really a Christmas gift to you? When your parent’s die, you will have the burden of administering the estate. Do you really want to go through probate? Wouldn’t you like your inheritance to avoid probate and be significantly protected from divorce and lawsuits?
Why not give your parents an estate plan for Christmas? You can pay the attorney directly, or even better, make a cash gift to your parent for the attorney fee. Just don’t ask them to disinherit your brothers and sisters and leave everything to you – that could be undue influence and get you in trouble.
As you already know, we make estate planning very easy and uncomplicated. Two attorney meetings and done in two to three weeks. Our typical fixed fees range from $1500 – $2000 for a comprehensive custom living trust estate plan, and we provide our clients unlimited access to our attorneys for questions for free.
Remember that sense of relief you felt when you signed your estate planning documents? Why not experience that again by making this month the month you help your parent’s get their estate planning done?
I would maintain that thanks are the highest form of thought, and that gratitude is happiness doubled by wonder. — G.K. Chesterton