Anyone who is planning for the future should be well aware of the potential ravages of the federal estate tax. There is a certain amount of money that you can pass along to your loved ones free of this tax, and everything that exceeds this exemption is subject to the tax. Right now the amount of the estate tax exclusion is $5 million, and the maximum rate of the tax is 35%.
A lot of people will read the above and say, okay, so I’ll give my money away to those who would otherwise inherit it while I’m still alive to avoid this tax. While this is logical, there is a gift tax in place that is unified with the estate tax.
The federal government doesn’t want you to be able to sidestep the estate tax by giving gifts, so the gift tax carries the same rate as the estate tax with which it is unified. So if the rate of the estate tax goes up or down, the rate of the gift tax will follow suit.
In addition, the exclusion is unified as well. So if you were to use the entirety of your $5 million unified gift/estate tax exclusion giving tax-free gifts while you are alive, there would be no exclusion left to apply to your estate after you pass away.
There are steps that can be taken to reduce or eliminate your tax exposure. If you would like to explore them in depth, we invite you to attend one of our free educational seminars. We regularly offer free estate planning seminars in Santa Clara County and Santa Cruz County. To view and register for upcoming seminars, follow this Seminar Link or call our office at (408) 356-9200 or (831) 476-2400. We offer free consultations to those who attend our seminars.