Just announced by the IRS, the 2016, gift tax exemption will be $5.45 million per individual ($10.9 million for married couples) up from $5.43 million in 2015. This means an individual can leave $5.45 million to heirs without paying any federal estate of gift tax. With a top federal estate tax rate of 40%, it makes sense to work with your legal and tax advisors to keep your estate below this new threshold. In 2011, the Congress set the estate exemption at $5 million and mandated that the threshold would be indexed for inflation. For those willing to do proper planning this is a compelling opportunity considering that in 2001, the limit was only $675,000.
While the estate tax exemption was indexed for inflation, the annual gift exclusion was not and the IRS left that at $14,000 for 2016 (or $28,000 if you give jointly with your spouse). You may give this amount to as many people as you'd like in cash, investments, and/or property without triggering gift taxes. Keep in mind that the IRS considers the value of the gift its cost basis for purposes of computing gift tax to be its value at the time that it's given, not when you originally purchased or invested in it. So assets which are likely to significantly increase in value over time good candidates for gifting. This will also help to control the growth in your estate. By making a tax-smart financial gift to an adult-aged child, you could help him or her fund a down payment for a home or afford to maximize contributions to an employer-sponsored retirement plan.
The forgoing is provided for information purposes only. It was obtained from sources believed to be reliable but Paragon Bank does not guarantee the accuracy, adequacy, completeness or availability of any information and is not responsible for any errors or omissions or for the results obtained from the use of such information. Paragon Bank does not provide legal or tax advice. You should consult your legal or tax professional regarding the applicability of this information to your specific situation.