Minimize Estate and Gift Taxes

With the new, and hopefully permanent, estate and gift tax exemption of $5.34 million (in 2014 indexed to inflation), the vast majority of people dying will not face estate or gift tax liability. It gets even better. A married couple can combine their exemptions to cover their combined estate of over $10.68 million. If you want to provide a direct gift to grandchildren, there is an additional generation skipping tax to be considered. Again, there is a $5.34 Generation-Skipping Transfer Tax Exemption – a transfer tax on property passing from one generation to another generation that is two or more generational levels below the transferring generation, i.e., your grandchildren.

A properly considered estate plan will take into consideration potential estate tax liability and appropriate techniques to reduce your taxable estate, such as: charitable gifts, family limited partnerships with valuation discounts, qualified residence trusts, etc. Also, where assets are not readily marketable (i.e., real estate, business interests), it will address necessary liquidity to pay the taxes when due.

The annual gift exclusion is currently $14,000 for 2014. Married couples can combine their annual gift exclusion amounts to make tax-exempt gifts totaling $28,000 to as many individuals as they choose each year, whether both spouses contribute equally, or if the entire gift comes from one spouse.

Many states have some form of a death tax. California’s estate tax system is commonly referred to as a “pick up” tax. This is because California picks up all or a portion of the credit for state death taxes allowed on the federal estate tax return. Since there is no longer a federal credit for state estate taxes on the federal estate tax return, there is no longer basis for the California estate tax. California has neither an estate tax — a tax paid by the estate — nor an inheritance tax —a tax paid by a recipient of a gift from an estate.