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image of fiduciary dutyA number of people give sizeable financial gifts to family and/or friends on a yearly basis. Some do so to help their relatives, and some do so to reduce a large estate and avoid triggering estate taxes. Understanding how estate and gift taxes apply to your giving plan is an important part of any gift giving strategy.

 

Estate Taxes (e.g., Death Taxes):

For 2022, the Federal Estate Tax Exemption is set at $12.06 million for individuals and $24.12 million for married couples. This exemption allows an individual or married couple upon their death to pass an estate valued under the above amounts to their descendants completely federal tax free. E.g., as long as your total estate is under that exemption amount, there will be no estate or death taxes imposed - - e.g., the inheritance will be tax free. This exemption amount is scheduled to increase each year with inflation until 2025. On January 1, 2026, the exemption amounts are scheduled to revert to the 2017 levels of $5,490,000 for individuals and $10,980,000 for married couples. The Estate Planning community is hopeful that the U.S. Congress and President will not allow this reversion, but will enact a fix to keep the exemption high. Nevertheless, this issue is somewhat of a “political football” and what happens is somewhat dependent on what party is in power (historically Democrats want to have a low exemption so they can tax inheritances and Republicans want a high exemption to allow inheritances to pass tax free). The State of Missouri follows the above federal exemption limits, so there will not be any state estate/death tax imposed if you’re under those limits. Nevertheless, if you relocate to another state, different states may impose their own Estate/Death tax that may be different than the Missouri or federal schedule.

As these exemptions are fairly high these days, most people do not need to do substantial tax planning as they’re well under these limits. Nevertheless, if you are approaching or over these limits, or if there is concern that you may get caught in the 2026 reversion, you should discuss this with our office so that we can take this in consideration when deciding whether any tax planning will need to be done within your Estate Planning documents. As the government can change these exemptions as they deem fit, please keep apprised on this issue in the news as it could affect your estate plan.

 

Gift Taxes:

In 2022, each person may give $16,000 per year to as many individuals he or she desires without incurring a gift tax and without using any of their gift tax exemption. Married couples can combine their gift tax exclusion and jointly give $32,000 per year to as many individuals as they wish. A married couple could effectively utilize both of their exclusions and give a total of $64,000 to their child and his/her spouse. You can still gift more than that sum on a yearly basis, but you will have to file a gift tax return with your personal tax return and your lifetime gift tax exemption may be reduced accordingly, thus ultimately affecting your tax situation.

Chesterfield estate planning attorney Chris Cox helps people throughout the St. Louis area with estate planning, trust administration, probate and gift giving strategies to maximize the transfer of wealth to your family and friends. To learn how the law applies to your specific circumstances, schedule your FREE consultation with an experienced estate planning attorney online or call our office at 314-727-0163.

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