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2016 Estate & Gift Taxes at a Glance

2016 Estate & Gift Taxes at a Glance

estate planning

Estate planning is not something that should be taken lightly. As the rules change, and limits are adjusted, individuals should stay on top of their estate plans to ensure that transfer of their estate is smooth and efficient after their passing.

2016 Estate Exemption Limit

The IRS has recently announced the 2016 estate and gift tax exemption. They have increased it to $5.45 million. This means that an individual may leave this amount to their heirs without them having to pay federal estate taxes.

Exemption for Couples

Further, if an individual is married, the couple may leave up to $10.9 million to their heirs. Additionally, the gift tax exclusion has not been changed and remains $14,000. Wealthy individuals should keep these numbers in mind and meet with their estate attorney to determine the best way to allocate and transfer their estates if they are above these limits. Doing so is the best way to avoid paying estate taxes which can be as high as 40%.

Changes in the Future

It is possible that there will be changes to the federal estate tax in the future as presidential candidates discuss lowering the estate and gift tax thresholds. While these will not affect individuals now, they may in the future. Some proposals are calling for decreasing the limit to $3.5 million, and an increase of the top tier estate tax to 65%. Whether these changes will become law will depend on the next congress which will take office in 2017. Because of the potential for changes in the future, individuals should plan accordingly now.

Illinois Estate Tax

Individuals should also remember that Illinois has its own estate tax. This tax is separate from the federal estate tax. In Illinois, estates less than $4 million dollars are not subject to the tax. Individuals receiving estates in excess of this limit should meet with their estate attorney for assistance in filing an estate tax return. This is imperative as there are many tax deductions that can reduce the size of the taxable estate. Further, surviving spouses or civil partners are not subject to paying taxes on the estates left to them by their spouse or partner.

When calculating the value of an estate, individuals must factor in bank accounts, stocks/bonds/investment accounts, real estate, vehicles, personal property, life insurance policies, and retirement accounts. Additionally, any businesses, trusts, or dividends must be carefully accounted for and included in the total estate value.

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