IRS offers holiday season tidings on tax exclusions estate planners should remember
The holiday season upon us, meaning that the remainder of the year will see a significant amount of purchasing and bestowing gifts. The spirit of giving is not lost upon the federal government, particularly regarding those gifts with significant valuations, or those bequeathed by an estate. Accordingly, the Internal Revenue Service has announced its gift tax and estate tax exclusion limits for the coming year.
The IRS made its timely announcement on October 30, just prior to the heavy shopping season of Thanksgiving and Christmas. The estate tax exemption — the amount a person can leave to heirs without being assessed a federal estate tax — will rise to $5.43 million per person in 2015, which is up from $5.34 million for this year. (1)
The IRS announced no change to the gift tax exclusion amount, which will remain at $14,000 for 2015. Cumulatively, all gift tax exclusions count against the lifetime estate tax exemption amount. However, it is important to remember that spouses wishing to leave as much in tax-free assets to their heirs as possible are each entitled to their own exemption. Thus, a couple will be able to bequeath $10.86 million tax-free in 2015, less the amount of any prior lifetime gifts. (2)
It is also important to remember that a person can give away gifts valued at $14,000 to more than one individual, and spouses can each give up to $14,000 to the same individual in the same year. And should a person wish to avoid the gift tax limit altogether, he or she can make a payment directly to a provider. This tactic is especially useful if, for example, a parent wishes to help an adult child with medical or housing expenses or with the purchase of a new automobile. (3)
Another rule that has not changed with respect to the estate and gift tax exclusions is that any gifts or assets bequeathed from a so-called family limited partnership are discounted in valuation for lack of marketability, and thus the gift tax and estate tax exclusions are maximized for those assets that are transferred through an FLP.
An experienced estate-planning attorney can discuss the advantages of an FLP with a person and establish such an asset-protection vehicle for them, as well as review and assist in the creation of other estate-planning options.