The IRS has announced its estate tax and gift exemption for 2016, which is $5.45 million per individual and $10.9 million for a married couple. This is up just a bit, based on inflation, from the 2015 exemption of $5.43 million applicable to residents of New York and across the country. The yearly gift exemption remains the same, at $14,000.
The exemptions allow people to give up to the limit during their lifetime and after their death without requiring their heirs to pay taxes on these assets. Surviving spouses may take advantage of their deceased spouse’s unused exemption under portability rules, but an affirmative election must be made on their federal tax returns.
There are a few ways that people can reduce the amount that their gifts and inheritance count towards their exemption limit. IRS rules make gifts to students up to the age of 23 tax free, and gifts for medical, dental and tuition expenses do not count towards an exemption if they are paid directly to the provider. This counts for both friends and family.
Tax planning is an important part of estate planning. If someone does not take taxes into consideration, their heirs may end up with a far smaller inheritance than was intended. Inheritance taxes are not only imposed by the federal government, as several states also have their own version, so even if an estate is below the federal estate tax threshold, it may still have a tax liability. An estate planning attorney can often provide advice with respect to these and other matters.