1. Estate Tax and Gift Tax Exclusion Amounts for 2016
The estate and gift tax exemption amount is presently $5.4 million for 2016 and the annual exclusion for gifts is $14,000.00.
What does this mean? It means that an individual can leave up to $5.4 million to heirs and not pay estate tax. Married couples then can leave up to $10.8 million. You can also make tax-free gifts during your lifetime (but you need to keep track of them) up to $14,000 per year per person with a lifetime total gift exemption of $5.4 million.
For example, one parent can gift to all five children $14,000 tax free. You do need to keep track of your gifts as they count against the eventual estate tax exemption amount.
2. Oral Promises Are Not Enforceable
A will or other estate planning documents are important if you are interested in having your wishes known and followed by your heirs. Reducing your wishes to writing helps clarify what you want.
While the specific laws vary state to state, with respect to the division of your property, the caretaker for your children, and any plans you have in mind for after your death, it is important to remember that written documents are enforceable whereas oral promises are not.
3. Estate Planning Consequences of a Second Marriage
Although the laws vary state by state, in most states, the intestacy laws provide that a surviving spouse will initially inherit your property after your death. Intestacy laws are the laws that govern the distribution of property after an individual’s death when there is no will or other estate planning documents in place.
In the case of a second marriage, it may not be your intent to exclude your children from an inheritance. If there is no will in place, however, there is nothing that would legally require your present surviving spouse and non-parent to your children to making a distribution to them. A will or other estate planning documents allow you to provide for your children as you desire rather than how your state’s intestacy laws have determined.
If you are interested in having part of your estate gifted to a charity, estate planning is necessary. Many people are interested in leaving behind a legacy of supporting meaningful causes.
Donations to charity can also provide tax benefits by reducing your taxable estate. Once you have a will in place that provides for a bequest of a portion of your estate, you are still able change the provisions in your will at any time before your death.
There is no income-tax deduction for the future gift, however, compared to giving to charity during your life, which can generate income-tax deductions but, of course, the gifts are irrevocable.
5. A Guardian for Your Children
It is important to identify a guardian and successor guardian for your children as part of your estate planning process. It can be a difficult decision to take the time to envision a scenario where your children are parentless.
If no selection is made, however, most states provide that the state will determine who should be the guardian based on the court’s determination of the best interest if your children. The individual appointed by the court may not be the individual that you believe to be in your children’s best interest.