Texas Estate Planning

Estate and Gift Taxes

Tax considerations in estate planning are extremely complex and difficult. Following is a very brief overview of the basics of these topics, but the overview is not all-inclusive. We hope that this basic review of tax considerations in estate planning will give you a basic understanding of these concepts to better prepare you to discuss them with our estate planning attorneys.

The Estate Tax is generally described as a tax on the transfer of wealth from one generation to another at the death of the transferor. In simpler terms, the estate tax is a tax on the fair market value of the assets that someone leaves at the time of their death.

The Gift Tax is a similar tax in that it is a tax on the transfer of wealth from one generation to another when the transfer is made during the lifetime of the transferor. More simply, the gift tax is a tax on any gifts that a person makes during their lifetime.

The Estate Tax....

The Estate Tax is not the same as income tax. While the income tax is a tax imposed on any income that you generate during your lifetime, the Estate Tax is a tax imposed on the total value of the assets that you own at the time of death. For purposes of calculating the estate tax, all of your assets are counted, including cash, stocks, cars, life insurance, real estate, retirement plans, etc.

Every individual in the U.S. qualifies for an estate tax exemption, which is currently $5.0 million, and is adjusted for inflation each year. For 2013, the inflation adjusted exemption amount is $5.25 million.  The exemption means that the first $5.25 million of assets in an individual's estate is exempt from paying estate taxes.

The new law passed in 2013 also made the concept of "portability" permanent.  Portability allows married couples to use any portion of their spouse's unused exemption amount upon the first spouse's death.  This means that if the husband dies first, but only has separate assets of $3.0 million, the wife could potentially pass her $5.25 million tax-free, as well as her husband's unused remainder of $2.25 million.

The Gift Tax....

The Gift Tax is computed much in the same way that the Estate Tax is computed. The tax is calculated based on the fair market value of the property given away in each year. Each individual in the U.S. qualifies for a $5.25 million exemption from gift taxes, which means that the first $5.25 million of taxable gifts that a person gives away is exempt from gift tax.  However, this would eliminate any ability to transfer assets tax-free upon that individual's death, as the Gift and Estate Tax exemption are now a combined $5.25 million.

In addition to the $5.25 million combined exemption, every individual in the U.S. has the ability to give away $14,000 each year to as many individuals as the individual chooses without paying gift taxes. This annual gift amount is known as the “annual gift tax exclusion” because these gifts can be made every year, and they are excluded from gift taxes.

Utilization of the annual gift tax exclusion in an Annual Gifting Program is a very popular mechanism of removing assets from the estates of individuals who might be required to pay estate taxes upon their deaths. This topic is explored in more detail in our section on the Annual Gifting Program.

Tax Considerations in Estate Planning....

Estate and Gift tax considerations drive most estate planning decisions. The overwhelming goal behind estate planning relates to reducing estate and gift taxes so that the maximum assets can be passed tax free to future generations of a family.

Because the Estate and Gift Tax concepts are extremely complex, it is important that you seek qualified advice before making your estate planning decisions. The attorneys at Ford+Bergner LLP routinely counsel their clients on these issues, and we will be glad to assist you.

Estate Planning Information Center

Ford+Bergner LLP

  • 700 Louisiana Street
  • 48th Floor
  • Houston, TX 77002
  • T: 713.260.3926
  • F: 713.260.3903
  • 901 Main St.
  • 33rd Floor
  • Dallas, TX 75202
  • T: 214.389.0887
  • F: 214.389.0888

*Name:
Phone:
*Email:
City, State:
County of Case:
*Type of Case:
Brief Case Description:

Does not establish attorney-client relationship.

Latest News

F+B Sends Opposing Counsel Running in Contested Guardianship

— F+B’s client was opposed to having a guardianship for her son. As a result of F+B’s aggressive, knowledgeable representation, our client received a spectacular result because the case was cut very short, and she achieved the complete result that she sought.

Ford + Bergner Attorney Thomas Horton Wins 2 Trials

— In January and February 2016, F+B attorney Thomas Horton won back to back trial victories in two different cases that had the same issue.

F+B Wins Will Contest in Small East Texas Town

— Ford + Bergner LLP recently won a significant victory for a large client in a small town in East Texas.

 

By Don Ford