As many California residents know, the Internal Revenue Code contains provisions that deal with the imposition of taxes on certain transfers of property from one person to another. The estate tax applies in some cases to transfers made from an estate after the owner's death, while the gift tax is imposed on transfers made while the giver is still alive. In each case, there are certain exemptions, exclusions and credits that may apply.
For the 2015 taxable year, estates with a gross value not in excess of $5.43 million are not subject to the estate tax. In the case of married couples, the estate of each spouse is allowed the $5.43 million exemption, with any amount left over after the first spouse dies carried over to the survivor. With respect to the gift tax, people are allowed to make gifts in the amount of up to $14,000 per recipient in a calendar year without having to pay any tax. A gift tax will be imposed on gifts in excess of that amount.
A husband and wife may contribute up to $28,000 to any individual donee without using any of the exemption. As this limit is an annual one, they could give up to $28,000 a year to each of their children or grandchildren, for example. This can have the effect of reducing the size of the estate when the donor dies.
Those who are thinking about ways to save money on these types of taxes may wish to talk to an attorney who has experience in drafting estate planning documents. Even if the value of a person's property is unlikely to exceed the minimum threshold that would trigger the imposition of the tax, there are many other strategies that can be employed that can help ensure a smooth distribution of assets upon the owner's death.
Source: MarketWatch, "3 important things to know about estate planning", Bill Bischoff, Feb. 11, 2015