Each year, the IRS adjusts the limits for the amount of tax-free annual and lifetime gifts an individual can make. The Federal estate tax lifetime exemption is the amount an individual can leave to his or her heirs without having to pay Federal estate tax. The annual gift tax exclusion is the amount an individual can gift each year to another individual without using up their lifetime exemption. Beginning January 2015, the IRS has adjusted for inflation the federal estate tax lifetime exemption amount. The exemption amount has increased from $5.34 million to $5.43 million. The combined lifetime exemption amount has also increased for married couples, rising from $10.68 million to $10.86 million. With the Federal estate tax rate at 40%, it becomes critical to plan to avoid estate taxes if you are an individual with higher wealth exceeding the lifetime exemption.
Separate from the federal estate tax lifetime gift exemption is the annual gift tax exclusion. The annual gift tax exclusion will remain at $14,000 for each individual. Annual exclusion gifts do not count towards your lifetime gift exemption. Therefore, if you gift no more than $14,000 to each individual each year, you will never use up any of your lifetime exemption. It is important to work closely with your CPA, attorney, and financial advisor to determine how much, if any, you should be gifting each year.
Traditionally, only the wealthy have been concerned with these tax-free limits on gifting. However, elderly individuals may make gifts to family members and are not aware of the Medicaid rules. If an elderly couple ends up running out of money and need Medicaid to pay their nursing home costs, the gifts to family members may need to be paid back to them. Medicaid planning and end-of-life planning can have an impact on the middle class. It is very important to review your annual and lifetime gifts to save estate taxes with your CPA, attorney, and financial advisor to find out if you need to make your annual and lifetime gifts and if you need to plan for qualifying for Medicaid.
Bill Hesch is a CPA, PFS (Personal Financial Specialist), and attorney licensed in Ohio and Kentucky who helps clients with their financial and estate planning. He also practices elder law, corporate law, Medicaid planning, tax law, and probate in the Greater Cincinnati and Northern Kentucky areas. His practice area includes Hamilton County, Butler County, Warren County, and Clermont County in Ohio, and Campbell County, Kenton County, and Boone County in Kentucky.
(Legal Disclaimer: Bill Hesch submits this blog to provide general information about the firm and its services. Information in this blog is not intended as legal advice, and any person receiving information on this page should not act on it without consulting professional legal counsel. While at times Bill Hesch may render an opinion, Bill Hesch does not offer legal advice through this blog. Bill Hesch does not enter into an attorney-client relationship with any online reader via online contact.)
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