Changes to tax exemptions have shifted the way estate planning has been viewed in the past, and the federal estate and gift tax exemptions have increased. New York residents should keep these considerations in mind when getting their accounts in order.
The estate-tax exemption allows one to leave heirs up to $5.43 million tax-free in 2015. This amount applies to one person, and a spouse could use the other partner's leftover amount if there is any. Additionally, one can gift up to $5.43 million in total to anyone without being taxed while still alive. Spouses also have separate gift-tax exemptions.
Most people will not ever need to pay any federal gift tax as those who are close to the limit may still give gifts up to $14,000 under the annual gift tax exclusion rule. If one does not exceed this limit in a year, the amount does not count as part of estate-tax or gift-tax exemptions. When the limit is surpassed, both exemptions are reduced when gifting more than $14,000 to someone in a year.
Those who own estates larger than $5.43 million should take advantage of the yearly gift tax exclusion to avoid higher estate tax costs. This allows one to give away $14,000 to multiple people without tax, which lowers one's estate tax. This money generally goes to people in a lower tax bracket, so the money is taxed at a lower rate.
Estate planning is important to ensure one's wishes are met after passing away and often allows one to avoid high tax rates and give the most to loved ones. However, an estate plan can benefit someone while still alive as living wills instruct others how to care for one who is no longer capable of making decisions.