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Estate and Tax Planning Basics Part 1

Planning your estate involves thinking about taxes. Skillful tax planning can help you to avoid and minimize some of these taxes. This article gives an overview of two of the common kinds of taxes you may need to be aware of when planning your estate.

Estate and Gift Tax

When people think about tax planning for estates, very often the first thing that comes to mind is estate tax. Florida does not have a state estate tax, so Floridians who do not have out-of-state residences do not need to worry about estate and gift tax. However, federal estate and gift tax will still apply.

The 2016 federal estate tax exemption is $5.45 million. Therefore, if your total estate and gifts are less than $5.45 million, you will not be subject to estate and gift tax. If you are married then you can combine exemptions for a total of $10.9 million. A process called “portability” allows a surviving spouse to use the unused portion of a deceased spouse’s exemption.

The 2016 gift exemption is $14,000. That means that you can give up to $14,000 to each person this year without it counting towards your estate and gift tax exemption.

Capital Gains Tax

A more common tax that people planning their estates need to worry about is the capital gains tax. Capital gains tax is tax on unearned income, such as income from investments. For example, if you have a stock that you bought for $100, but it is now worth $1,000, if you sold it right now you would owe tax on the $900 profit.

However, if an asset passes at death, the person who inherits it only needs to pay taxes on the profit from the time that he or she gets the asset until he or she decides to sell it. Using the example above, if instead of selling the stock, the owner passes the stock on death, then the person who inherits the stock will only need to pay taxes on any appreciation above $1,000. Proper planning will save the original owner of the stock from having to pay the capital gains tax on the $900 profit. Of course, that is assuming that the original owner wants to pass the stock at death and does not want access to the liquidated value right now.

The Villages Tax Planning Attorneys

As you probably know, taxes can be incredibly complicated and this is just the tip of the iceberg. In order to make sure that you plan your estate in a way that minimizes taxes you need to work with a knowledgeable tax-planning attorney. Our experienced tax-planning attorneys at the Millhorn Elder Law Planning Group, located in The Villages, can help you whether you are concerned about the federal estate tax or have much more modest tax concerns.

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