The Gift Tax and the Estate
As people gather assets over the course of their life, their thoughts are often consumed with their financial issues, retirement planning, and what to do with their estate after they pass away. Some people may assume that their estate is simply going to be passed down to their loved ones; however, this isn't so easy. There is an estate tax that many people could have to pay on the value of their estate and, for larger estates, this tax could potentially remove fifty percent (or more) of the value of the estate. Careful planning is required to preserve as much of the estate as possible for their loved ones.Reduce the Value of the Estate Before Death
Because the estate tax is triggered on someone's passing, it can be helpful to cut down on the value of the estate before someone's death. For example, estate owners could give some of their value away to charity or gift some of the estate's worth to their beneficiaries before they pass away. If this was the plan for the estate in the first place, the beneficiaries are just receiving some of the value earlier. In this fashion, when someone passes away, the estate will be smaller, reducing the amount owed in estate tax.Beware the Gift Tax
While this sounds like a great idea, people should remember that there is a gift tax. If someone receives a financial gift, they could have to pay a percentage of that gift in taxes at the end of the fiscal year. Someone who receives a gift of over 14,000 dollars will have to pay a gift tax on every dollar amount over the 14,000 dollar limit. This could prevent people from significantly cutting down the value of their estate.Implications of the Gift Tax
While this may sound like a road block, there are certain strategies people can use. Remember that the gift tax is applied on a per-person basis. This means that an estate with multiple beneficiaries can give away a gift to each beneficiary, helping to reduce the estate's value further. In addition, the estate tax is applied on an annual basis. People can receive multiple gifts of up to 14,000 dollars if the gifts are spread out over multiple years. Take advantage of this to reduce the estate's value prior to death to minimize the amount of estate tax owed.
** Note: This article is not meant to be taken as any form of legal advice. This is purely informational. For questions please contact your attorney, or schedule an appointment with Vilar Law directly.