Many New Jersey residents have worked hard to build a strong base of wealth. Retaining as much of that wealth as possible becomes a priority for many families. Understanding the proper steps required to do so can be a challenge, as there are a wide range of rules in place that must be carefully adhered to in order to achieve a favorable result. By working with an attorney, individuals and families can create an estate tax planning strategy that meets their needs.
When considering estate planning, many people focus solely on the distribution of wealth to heirs after a death has taken place. While this is one of the primary goals of estate planning, there are many ways to take action to preserve assets and reduce taxes prior to one’s death. An example lies in creating and implementing a plan to gift assets to one’s chosen heirs, instead of passing that wealth on after death.
Individuals are eligible for an estate tax exemption in the amount of $5.43 million. Married couples receive the same exemption for both spouses, and if one spouse does not make use of his or her full exemption amount, the remainder can be passed to the surviving spouse. However, for couples who have amassed a large estate, this exemption is not enough to avoid significant taxes. A more comprehensive estate planning option would be to make use of the federal gift tax exemption in addition to the estate tax exemption.
Individuals can make gifts of up to $14,000 each year without incurring a federal gift tax. Such gifts do not reduce an individual’s federal estate tax exemption. The same $5.43 million limit is placed on the gift tax exemption, but individuals can make such gifts over time. Should the total lifetime gift amount exceed the $5.43 million limit, taxes would be incurred beyond that point.
So, for couples in New Jersey who have a large estate, a combination of the estate tax exemption and the gift tax exemption can help the family effectively reduce the estate by gifting wealth to the intended heirs in the years preceding the death of the parents. Adult children are often taxed at a lower rate than their parents, so gifted money will still take on a lower tax burden than had it been inherited. This is just one example of the benefits that can come from careful estate tax planning.
Source: marketwatch.com, “3 important things to know about estate planning“, Bill Bischoff, Feb. 11, 2015