One of the reasons why you should develop an ongoing relationship with an estate planning attorney is to stay informed about relevant changes to tax laws. Estate planning is an ongoing process, not an event that can be forever resolved in a single day. With this in mind, you should be aware of the key elements of the federal estate tax.
Estate Tax Credit or Exclusion
Although you might develop your estate plan at a time when you have no exposure to federal estate tax, subsequent changes to the law could change this result. If you develop a long-term relationship with an estate planning attorney, they will be aware of any such changes in the law and notify you if changes to your existing estate plan are necessary.
Your exposure to federal estate tax depends on whether the value of your assets exceed the federal estate tax exclusion amount at the time of your death. For 2013, the federal estate tax exclusion amount is equal to $5.25 million and will be adjusted annually for inflation. The Internal Revenue Service recently announced next year’s inflation adjustment is $90,000. As a result, the federal estate tax exclusion for 2014 will increase to $5.34 million.
Gift Tax & Unification
The federal estate tax exclusion is called a “unified” exclusion because it applies to both gift tax and estate tax. Any taxable gifts made by you during your lifetime are included with the value of your estate at the time of your death. This total is compared to the federal estate tax exclusion amount to determine if any estate tax is due before passing your estate to your living heirs.
Annual Gift Tax Exclusion
An annual gift tax exclusion is available in addition to the unified estate tax exclusion. The annual gift tax exclusion allows a taxpayer to make gifts up to $14,000 per donee during each calendar year free of gift tax. If you make gifts exceeding this amount to any single person in a calendar year, this excess would reduce your available unified estate tax exclusion amount. The annual exclusion will remain at $14,000 through the 2014 calendar year.
Blaine Peterson
Author, Attorney
Parman & Easterday
Since founding Parman & Easterday in 1985, Larry has led over 1,000 free, community-service education programs and helped more than 10,000 Oklahoma families go from putting off their estate plan to getting it done. His goal for every client is the same: to become the person their family calls "the one who took care of everything."
Larry is the author of three books: The Straight Shooter's Guide to Estate Planning; Estate Planning Basics; and Guiding Those Left Behind in Oklahoma. He served as Oklahoma's Secretary of State and Secretary of Commerce, and his firm is the only member of the American Academy of Estate Planning Attorneys in the state.
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