What are estate and gift taxes and why do people want to avoid them?

On Behalf of | Apr 14, 2015 | Estate Taxes |

Since tomorrow is April 15, we wanted to write about a topic that everyone loves to hate: taxes.

When it comes to estate planning, avoiding estate and gift taxes are two of the biggest goals for many of our clients.

First, let’s define what estate and gift taxes are:

  • Estate taxes are imposed by the government when property is passed from one person to another upon death.
  • Gift taxes are imposed by the government when property is transferred from one living person to another.

As FindLaw.com explains in detail, when a decedent’s estate is worth more than a certain dollar amount ($5.43 million in 2015) after certain deductions have been applied, then the estate must file a federal estate tax return (unless the decedent’s property transfers directly to the surviving spouse).

Gift tax, on the other hand, applies when property worth more than a certain amount ($14,000 in 2015) is gifted from one living person to another. There are many gifts that are exempt from gift taxes, including gifts to spouses, payment of tuition or medical expenses on the beneficiary’s behalf, charitable donations and gifts to certain political donations.

However, what many people don’t realize is that estate and gift taxes are really just one tax. That’s why it’s not possible to avoid estate taxes by gifting all property before death. Ultimately, whether you are living or dead, you can only transfer up to $5.43 million of property for deaths in 2015.

One of the purposes of estate planning is to avoid paying these taxes whenever possible. A couple common ways of doing this include lifetime gifting, which involves spreading gifts throughout a lifetime in order to avoid estate tax, and special trusts such as charitable trusts.

When people don’t plan to avoid gift and estate taxes, the tax rates are so high that the gift or estate can take a significant hit. Talk to an experienced estate planning lawyer  about ways to minimize your federal gift and estate taxes.

Archives

E-mail Cushing & Dolan

Articles By Our Attorneys

articles
BY OUR ATTORNEYS

Cushing & Dolan, P.C. | Attorneys At Law

FindLaw Network