Getting All the Facts for Your Estate Planning

Estate planning laws change from one year to the next. Anyone who is doing estate planning for the first time in 2020 should especially be aware of the current laws, and it is also helpful for people who have planned before but are not sure about current rules to update their knowledge.

These are some of the most important tips to remember for 2020.

The threshold for lifetime gift and estate tax increased – In 2020, the amount has risen to $11.58 million for individuals; it is $22.8 million for couples. This is the maximum amount of gifting via money or asset transfer allowed during a person’s lifetime without tax consequences. The limit more than doubled in 2019 after tax legislation was signed into law by President Trump.

The annual gift exclusion amount is $15,000 – The annual federal gift tax exclusion allows you to give away up to $15,000 ($30,000 for couples) in 2019 to as many people as you wish, without those gifts counting against your $11.58 million lifetime exemption.

Some types of gifts are not subject to this limit. For example, gifts to a spouse, a medical fund or an education fund are not included. Also, education and medical gifts are not taxable. When making medical or education gifts, transfer the funds directly to the institution rather than sending them to an individual recipient.

Lifetime exclusion amount portability is still an option – Estate tax laws started allowing surviving spouses to use remaining lifetime exclusion amounts of their deceased spouses in 2011. In addition to simplifying estate planning, this gave couples a way to access exclusion amounts.

Couples can transfer up to $22.8 million of their taxable property to their heirs without estate tax penalties. However, transfers must be made by election in the estate.

The gift and estate tax effective rate is 40% – If your estate is under $11.8 million, congratulations: The federal estate tax will not apply to your estate. Any amounts over that threshold will be taxed at marginal tax rates that cap out at 40% for an estate worth more than $1 million over the cap.

Remember state gift tax laws – While the rules covered in the previous sections apply to federal laws, they do not apply to state laws. Many states have laws that require estate and gift taxes. If the taxes include lifetime exclusion limits, they will be lower than the federal limits.

To learn about individual state laws, discuss concerns with an agent. It is not possible to avoid these taxes in the states where they are required.

The takeaway

While estate planning is not something most people think about often, it should be considered every year – and when any major life changes happen.

A new addition to a family, a marriage, a death in the family, getting a major promotion and big health changes are just a few examples of times when estate plans should be reviewed and changed as necessary.

Neglecting these changes can cost a person’s heirs a considerable amount of time and money. Stay on top of these issues to keep plans running smoothly. Call us to learn more about optimizing estate planning.

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