The Fine Print – Addressing Concerns with Estate and Gift Tax

One big concern that clients have when preparing their wills is the possibility of state and federal gift and death taxes.  People see ads by attorneys, financial planners and others promising to save death taxes through planning.  Thus, many of us assume that we have an estate tax problem.  So, let’s talk about the issue in real terms.  First of all, transfers to one’s spouse are tax free no matter the size of the transfer.  Secondly, North Carolina does not have an estate, inheritance or gift tax.  On the other hand, there are federal estate and gift taxes.  However, the 2018 federal exemption amount is $11.18 million per person.  With some very simple planning, the unused portion of a deceased spouse’s exemption amount can be transferred to the surviving spouse.  This is known as “portability”.  Thus, together, a married couple can pass about $22 million to their beneficiaries estate tax free.

These exemption amounts apply to gift and estate taxes; thus, if one uses part or all of the exemption amount for lifetime gifts, then the amount used reduces the available exemption amount at death.  Tax authorities refer to this as the “unified credit”.

In planning your estate from a gift/estate tax standpoint, there is an open issue that needs to be considered – the $11.18 million exemption only applies to tax years 2018 through 2025.  Thus, and unless Congress acts to preserve or increase the present exemption amount, in 2026, the exemption will revert to the 2017 exemption amount of $5.49 million per person (to be adjusted for inflation).

In addition to the federal exemption and “portability”, there is an annual exclusion from federal gift taxes of $15,000 per donee, which exclusion is subject to indexing for inflation.  Thus, in 2018 you can give $15,000 to an unlimited number of people without incurring a gift tax.  If married, your spouse can join in your gift(s) and the exclusion is increased to $30,000 per donee.

In addition to the federal exemption and the gift exclusion amount, you can also make the following gifts without triggering federal gift taxes: spousal gifts, charitable gifts, gifts to political organizations, gifts of educational expenses covering tuition, and in some instances, gifts of medical expenses paid directly to the medical facility.  (Note:  Before proceeding with any of these, talk with your estate planning attorney or tax preparer.)

There are many reasons for estate planning, but for most of us, the concern over potential estate or inheritance taxes is not one of them.  I have often told clients who are relieved to know that the “government” is not going to “take all their assets when they die through taxes”, to come back to see me when they win the lottery.  I wrote that in a similar article several years ago, and I am still waiting for my first lottery winner.

F. Lee Weaver, Esq. is an estate planning and corporate law attorney at Weaver | Budd, Attorneys at Law.  To schedule a consultation with him, please call (704) 841-0760. The information contained in this article is general in nature and not to be taken as legal advice, nor to establish an attorney-client relationship between the reader and F. Lee Weaver or Weaver | Budd, Attorneys at Law.

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