There is an estate tax in the United States, and there is also a gift tax. The two taxes are unified, so there is a unified exclusion.
What Is the Unified Exclusion in Hartford Connecticut?
The exclusion is also called a credit, and this is the amount of property that you can transfer to others without incurring any transfer taxes. In 2014 the amount of the unified exclusion is $5.34 million. You can transfer this amount to others free of gift and estate taxes. If you go above this amount, a tax would be applicable if you do not implement tax efficiency strategies.
When Should You Use It?
Since this exclusion can be used while you are living you may wonder if you should utilize it during your life or save it to be used when your estate is being transferred to your heirs. This is a multifaceted question.
In a real sense, there is no difference. If you give away $5.34 million while you are living, everything else would be taxable after you die. If you give away nothing while you are living, $5.34 million of what you are bequeathing could be passed along tax-free, and the rest would be taxable.
There is however one wildcard that could come into play. The estate tax exclusion is not etched in stone. At the present time it is raised annually to account for inflation. The starting point was the $5 million that was put into place for 2011. So the exclusion is essentially $5 million in 2011 dollars under currently existing laws.
However, these parameters are not necessarily etched in stone. Legislative mandate could change the amount of the unified transfer tax exclusion.
To provide an example that is very tangible, in 2013 the White House presented a proposed budget for 2014. This budget included changes to the estate tax parameters that would go into place in 2018.
If this budget was adopted, the estate tax parameters would go back to 2009 levels in 2018. The maximum rate of the tax would go up from the current 40 percent to 45 percent. The unified credit or exclusion would be reduced to $3.5 million with no ongoing adjustments for inflation.
This is just a proposal. It has not been adopted as law, and as we all know these budget negotiations are very contentious. However, under circumstances such as these, you would definitely want to consider giving gifts while you are living using the unified exclusion before it was reduced.
Wealth Preservation Consultation
This is a brief look at the possibility of utilizing all or part of your unified exclusion while you are still alive. If you would like to discuss a broad range of wealth preservation strategies with a licensed estate planning attorney, we invite you to contact our firm to schedule a free consultation.