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Tips for updating an estate plan for 2016

With every new year, New York residents may wish to review their estate plan documents in the event there are changes in federal and state estate tax laws. An estate plan that is not current with the laws and rules may be subject to unexpected taxes or other changes, which could ultimately affect a testator's beneficiaries.

While many estate-planning rules will remain the same for 2016, the lifetime gift and estate tax exclusion amount will increase to $5.45 million, which is a $20,000 jump from 2015. Since 2005, the lifetime exclusion amount, which was at $1.5 million for that year, has been consistently rising due to inflation. As a result, a great deal of people think estate planning is unnecessary. However, for those who wish to be ensured their estate will go to the heirs of their choice, estate planning is still a smart thing to do.

Regarding the effective tax rate as it applies to estate and gift taxes, the amount will remain at 40 percent. Because this rate was once 55 percent, it may be a good idea for estate administrators to check and see if they overpaid a final tax liability on the estate of an owner who previously made taxable gifts before passing away. In addition, the annual exclusion amount for gifts, which was $14,000 in 2015, will stay the same for 2016. This annual exclusion allows people to give qualifying gifts that are not subject to federal gift taxes. However, gifts given to a spouse or to an educational or medical institution can exceed the standard amount.

When updating existing estate plans, individuals might consider retaining an attorney who is knowledgeable in estate and probate laws. Because the laws surrounding estate planning are complex, an attorney might offer options that could help to lower the inheritance tax liability and assist with the necessary documentation.

Source: The Motley Fool, "Estate Planning in 2016: Here's What You Need to Know", Dan Caplinger, Dec. 11, 2015

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