Did You Procrastinate? It’s Not Too Late for Last Minute Estate Planning.
In my last blog article, I suggested that estate planning be added to your list of New Year’s resolutions. While it’s likely too late for any serious estate planning in 2017, it’s not too late to take some immediate steps to reduce the size of your estate through annual gifting.
Although many people do not have assets resulting in a federal estate tax being due at the time of death (the current federal estate tax exemption is $5.49 million per person), in Massachusetts the estate tax starts at estates valued at over $1 million. This may also seem like a large amount, but when you consider all of the assets that are included in your taxable estate (home, bank accounts, investment accounts, retirement accounts, life insurance if you are the owner of the policy, business ownership, cars, personal property and more), the tax threshold is not that hard to reach.
For example, if your estate is valued at $990,000, you will owe no Massachusetts estate tax. However, if an estate exceeds $1 million the entire amount above $40,000 is taxed. If the value of the estate is $1,100,000, the Massachusetts estate tax is $38,800. Quite a dramatic difference which should encourage everyone to meet with an estate planning attorney as soon as possible.
How can you quickly reduce the size of your taxable estate? Through annual exclusion gifts. An annual exclusion gift is one that qualifies for the current $14,000 per person annual exclusion from federal gift taxes. I understand that the exclusion amount will increase to $15,000 in 2018. The problem with an annual exclusion gift that it must be used each year. It cannot be carried forward. If you do not make your annual exclusion gift in 2017, it cannot be added to your annual exclusion gift in 2018 – it is gone forever.
A quick example to demonstrate: Tom and Sally (ages 65 and 66) are married and have two children, Mike and Jane (ages 34 and 35). Tom and Sally have a combined estate value of $2,000,000. By annual gifting, they can reduce the size of their estates by $56,000. In 2017, Tom can gift $14,000 each to Mike and Jane and Sally can do the same. Tom and Sally can do this again in January, 2018 and reduce the size of their estate by $60,000. Just like that they save estate taxes due on $116,000. If Mike and Jane are married (happily, of course), Tom and Sally can make the same gifts to their spouses, reducing the size of their estates by another $116,000 for a total of $232,000. This assumes that Tom and Sally want to and are financially able to make the gifts. They can further reduce their estates by gifting to grandchildren – though they may want to set up trusts for minors.
Annual gifting is just a part of estate planning. Still unsure about whether you need an estate plan? Contact an estate planning attorney today. We invite you to call our office at 508.250.0797 or email info@gmairlaw.com to schedule a free estate planning session with the mention of this article. If you would like to be notified of future articles, please subscribe to our blog in the right-hand column.
This article is intended to inform you of developments in the law and to provide information of general interest. It is not intended to constitute legal advice regarding a client’s specific legal issues and should not be relied upon as such. This article may be considered advertising under the rules of the Massachusetts Supreme Judicial Court.