New Jersey residents who are preparing their estate plans will likely be aware that there are some federal tax implications. For those who have a large amount of assets that will be passed on through a will or trust, more complex planning may be required. Included in this is an understanding of the tax consequences that come with passing on large amounts of money or property. One important aspect of this is the estate and gift tax. A failure to appreciate the effects and limitations of the estate tax could end up costing money that could otherwise be passed on to loved ones.
The Internal Revenue Code imposes taxes on most transfers of assets by way of a gift during the owner's life or after they die to taxation, unless an exemption can be found. The largest exemption is built into the estate and gift taxes imposed by federal law. In 2015, this exemption will be $5.43 million for gift and estate taxes combined. This means that gifts given to loved ones during a person's life will be exempted up to that $5.43 million and any assets passed on as part of the estate will be included in that figure.
There are other exemptions, such as an annual gift exemption. This allows people to give tax-free gifts each year, chipping away at the total taxable estate. Other considerations include the generation-skipping tax, which covers transfers to grandchildren and other more remote descendants.
Gaining an understanding of the interconnection of these Internal Revenue Code provisions can be difficult without the advice of an estate planning attorney. Legal counsel may be helpful in assessing a client's properties and drafting the appropriate wills, trusts and other documents with a goal of preserving and protecting those assets.
Source: American Bar Association, "Estate, Gift, and GST Taxes", accessed on March 7, 2015