Understanding the 2020 Gift & Estate Tax Exemption
Almost nobody has to worry about paying federal estate taxes upon their death, so long as they die soon and aren’t multimillionaires. The 2020 gift and estate tax exemption is so large it might as well be the rule — $11.58 million for an individual, $23.16 million for a married couple. Unless you are one of a few ultra-millionaires — 1,890 taxable estates in 2018, per the most recent estimates — federal estate taxation won’t be an issue if you pass away in 2020. But even if taxation isn’t your biggest planning concern, you do need to be aware of the rules.
The current ultrahigh exemptions aren’t set to expire until 2025, though if there is a change in presidential administration due to the 2020 election, we may see a change in the exemption amount as early as 2021. And if you are in the class of estates near the exemption amount, either individual or married, you may view this as an estate planning opportunity, one that can be met with lifetime gifts, specialized trusts, and other tax planning strategies.
If you are near the tax exemption threshold, you may use the annual gift exemption of $15,000 per recipient to drain some assets out of your taxable estate. For example, a married couple with 10 children and grandchildren could each give $15,000 to each descendant, totaling $150,000 per spouse, $300,000 for the couple, all tax-free. Doing that for enough consecutive years can significantly reduce your taxable estate.
And while this may sound like just a drop in the bucket for purposes of federal taxation, keep in mind that some states have their own taxes and exemption amounts. This same principle can help you to reduce state estate taxes.
Tennessee has no estate tax or inheritance tax, the latter of which is used in some states to taxes those who receive an inheritance rather than taxing the estate itself. So while Tennessee will not tax your estate, someone who inherits your property located in Kentucky will have to pay inheritance taxes to that state.
In the Chattanooga area, estate planning attorney Valerie W. Epstein helps to account for long- and short-term concerns in planning your estate. Call 423-265-5100 or contact us online. We provide free consultations and are available days, nights, weekends and holidays.