2016 Estate Planning Issues

The new year is here, and starting 2016 with your estate plan in good order is always a good idea.  While not everyone will need to make estate planning changes or adjustments in 2016, it is a good idea to be aware of changes you might need to make.  Sometimes, the slightest change can make a big difference.

2016 Estate Planning Issues – Exemption Adjustment

The federal estate tax is an important factor in some estate plans.   If it is, people create a variety of tools and strategies designed to minimize or eliminate their potential tax burden.  Here’s how it works.  At death the net value of our assets is subject to an estate tax.  One exception is that you can leave an unlimited amount to your spouse and pay no estate tax.  In tax jargon that’s referred to as the “unlimited marital deduction”.   However, if you leave assets to anyone else there is a limit to the amount you can transfer tax-free.   This amount is called the “exclusion” or more commonly, the “exemption”.   That means you can transfer any amount up to the exemption level and not pay estate tax on that transfer.  Transfer amounts over that amount will be subject to estate tax.  The exemption amount changes every year because of inflationary increases, and can also change as the result of new tax laws taking effect.

In 2015, the individual estate tax exemption amount was $5.43 million dollars. There are no new federal estate tax laws that change this amount in 2016, so on January 1^st the individual exemption amount will increase only because of the inflationary increase to $5.45 million. Anyone who dies in 2016 and leaves behind an estate worth less than $5.45 million will not have to pay any federal estate taxes.

2016 Estate Planning Issues – Gift Limits Remain Unchanged

For people who are worried about paying federal estate taxes, gift plans are often made an integral part of their overall estate plan.  Many people can significantly reduce, and sometimes eliminate, any potential estate tax bill by developing and using a gifting plan.

Lifetime gifts do not count against your estate exemption as long as you keep the gift amount under specific limits. In other words, you can make tax-free gifts if you keep them at or below another exemption amount.  One of those limits is the annual individual gift exemption; the maximum amount each person can give to any person during a year without the gift counting against your lifetime exemption we discussed earlier.  Like the estate tax exemption, the amount of money individuals can give tax-free others as yearly gifts also changes every so often, and can do so because of changes in the law and adjustments for inflation.

There is no adjustment to the individual gift amount in 2016, so it will remain $14,000 per individual recipient of the gift. This means that you can give up to $14,000 to as many people as you want without raising any estate tax concerns. Because the $14,000 amount is an individual limit, this means that if you are married you and your spouse can give the same gift to each individual, meaning the two of you can give up to $28,000 to any one individual in 2016.

2016 Estate Planning Issues – Annual Reviews

Even if none of the issues we talked about today directly affect you, it’s always a good idea to review your plan on a yearly basis and talk to us about issues you might want to think about, or changes you might need to make.  There may be other issues you need to address.  If you haven’t done so yet, contact us about your annual review.