Estates within Westchester are governed by federal estate tax laws connected with the lifetime gift tax exemption. In the year 2021 the Internal Revenue Service (IRS) released key figures for the year’s lifetime gift tax exemption. This will impact estate owners in Westchester, members of the aging population who enjoy government healthcare and even disability benefits for working class citizens and everyone eligible.
What is Lifetime exemption?
The lifetime exemption is a provision by the federal government with respect to estate taxes which allows for an estate owner to give a certain amount out in gifts during their lifetime without having to pay taxes on them.
Several criteria govern how the lifetime gift tax exemption works and affect estate owners, that being said you need a Westchester estate planning attorney to help you evaluate your estate and net worth, a lot of these exemption may not apply if your estate value below the set tax exemption amount of 11.7 million dollars which was 11.58 million dollars as at the year 2020. Both spouses in a marriage get the 11.7 million dollars exemption which sums up to 23.4 million dollars and the law permits you both to giveaway this total over your lifetime before paying the gift tax.
Federal taxes apply to estate valued at more than 11.7 million dollars, same amount as the lifetime gift exemption tax. The Internal Revenue Service (IRS) also stated the annual tax exemption or annual gift tax exclusion to be 15 thousand dollars ($15,000) same as in year 2019 and 2020. The annual gift tax exemption allows you to gift $15,000 to any one or organization year-round without being taxed on it. Regardless of how many persons you gift as this amount is per person in a year, a dollar added on to the set annual tax exclusion will attract 40% tax lowering your overall tax exemption and you would need to file a gift tax return.
Westchester estate planning attorney will explain some gifts that are always exempt from federal taxes, since they are not included you don’t need to report them to the IRS. They include;
- A gift to cover the medical expenses of any beneficiary so long it is paid directly to the healthcare facility in charge of such beneficiary.
- A gift to your spouse. To clarify, you have unlimited gifts that you can give to your living spouse as long as they are a US citizen.
- Gifts to charitable organizations as approved by the Internal Revenue Service
- A gift to cover any individual’s education tuition. Works same way as in paying for someone’s medical expenses as it is only valid if it is paid directly to the educational institution.
Making gifts donation now not only guarantees your use of the tax exemption, it also affords the entire benefits of these gifts on your estate in the future.
Ways of preserving your lifetime tax exemption
Below are some of the ways your estate planning attorney will help you preserve and maximize your lifetime tax exemption
- Charitable donations: your estate planning attorney will walk you through giving gifts to lower or charitable bequest of the assets hovering above the estate tax cliff. This provision is often referred to as “Santa clause” amongst estate planning practitioners and it is an effective strategy given that the excess amount of the exemption amount is above 100% of tax.
- Lifetime gifting: this is also a prospective way to tackle and overcome the united states estate tax cliff. The federal gift tax laws oversee this as Westchester doesn’t have a gift tax for lifetime gifting.
- Preparing suitable life insurance trust: life insurance policies will help families just starting out their estate planning. Holding insurance proceeds purchased from a life insurance trust will bolster estate tax exemption as it becomes an asset of the entire estate.
- Prepare an exemption trust: this another strategy for preserving your NY state estate tax exclusion amount that is, establishing a trust equal to the estate tax exemption amount. An estate planning attorney will help you create a trust that holds the value of the set amount for that year thereby preserving your lifetime tax exemption
It is best to use your exemption now to prevent the possibility of being subject to estate taxes when you die. The tax rate is currently at 40% and it might increase coming years as estate tax laws are dynamic. Hire an estate planning attorney that is well-versed with the law to help you enjoy the benefits of tax exemption