Each year, towards the end of the year, the Government announces the Estate Tax Exemption for the following year along with the corresponding Gift Tax Exemption. The Estate Tax Exemption is the sum of assets an individual can pass away with in each respective year without incurring any Federal Estate Tax on the transfer of such assets. The Gift Tax Exemption is the threshold for the sum of assets that an individual can distribute to another without having such transfer count against their life time gifting.
In the year 2020, the Estate Tax Exemption has increased to $11.58 million, which is an increase of about two-hundred thousand ($200,000.00) dollars ($11.4 million for the year 2019). The Gift Tax Exemption has remained the same. Specifically, the Gift Tax Exemption in 2019 was fifteen-thousand ($15,000.00) dollars and in 2020, the exemption remains at fifteen-thousand ($15,000.00) dollars.
Below are a few scenarios to help explain how the above Gift and Estate Tax Exemptions works.
For Example, Karen is a single woman with five (5) children and the value of Karen’s Gross Estate is $11.51 Million.
Scenario 1: If Karen passes away in 2019, gifting her entire $11.51 Million equally to her five (5) children, then Karen’s Estate would need to pay up to a forty (40%) percent tax to the Government on anything over $11.4 Million.
Scenario 2: If Karen passes away in 2019, but before she died, Karen made five (5) gifts of fifteen-thousand ($15,000.00) dollars (one (1) to each of her five (5) children) for the last 5 years, then Karen’s Estate is spared of the above mentioned forty (40%) percent tax because such gifts reduced her Gross Estate to under $11.4 Million (which would pass tax free using the Estate Tax Exemption for 2019).
Scenario 3: If Karen passes away in 2020, then she may pass her entire $11.51 Million equally to her five (5) children without incurring any tax. These examples show how timing and advanced planning is extremely important in situations where an individual’s assets are at jeopardy of being taxed upon their death.
Contact The Presser Law Firm, P.A. for a complimentary consultation to learn more about Asset Protection, Business Law, Estate Planning, and/or any other legal needs that you may have.
The Presser Law Firm, P.A.
6199 N. Federal Highway, Boca Raton FL 33487
(561) 953-1050 or e-mail Info@AssetProtectionAttorneys.com