Estate Taxes and Gift Taxes: An Overview

Information from Our Maryland and Washington DC Estate Planning Lawyer

Picture of couple discussing estate planningThose who possess significant property want to leave as much of it as possible to loved ones when they pass away. However, taxes can take a sizable portion of potential inheritance, leaving beneficiaries with a less than optimal portion of the estate. Planning your estate allows you to minimize your federal and state tax liability. To do this legally and effectively, you should understand the basics of estate taxes and gift taxes. Michelle Lanchester is an estate planning attorney who can explain the complexities of estate taxes and gift taxes and their effects on your assets and property. She can work with you to ensure your estate is in order and prepare the necessary financial and legal documents according to your wishes.

Gift and estate taxes are really the flip sides of the same coin: gift taxes incur for transfers of wealth during one’s lifetime, while estate taxes apply for transfers of wealth after death.

Estate Tax Overview

The estate tax is imposed on the transfer of property or assets, otherwise known as the “taxable estate,” when the estate owner passes away. This tax goes into effect whether or not the individual established a testamentary will.

The gross estate determines the value of the taxable estate. Gross estate consists of the complete value of all an individual’s cash and assets. The value of the gross estate is determined using the fair market value of each asset—not necessarily the amount an individual paid for these items but how much they are worth at the time of death. Once this amount is determined, certain deductions and exemptions determine the taxable estate. Deductions include funeral expenses, debts, certain property that passes to a surviving spouse and qualified charity donations. The amount remaining may be taxed if it surpasses a specific value.

Most small estates will not have to pay any federal estate taxes, as they will be exempt. The amount of the exemption changes from year to year. However, some states have their own estate tax in addition to the federal estate tax. Maryland is one such state, which taxes at a rate of 16 percent and sets the exemption at $1 million.

Gift Taxes Overview

The gift tax applies to the transfer of property from one individual to another during a person’s lifetime (as opposed to after death, when the estate tax will apply). Giving any type of property – including but not limited to money – to another individual expecting to receive nothing in return constitutes a gift. Gifting may also occur when one individual sells an item at less than full value or when an individual makes a loan without interest or with reduced interest. In 2014, individuals may make gifts of up to $14,000 to any person annually. This amount increases periodically.

Certain gifts do not count toward the gift tax exception. These include gifts to a spouse, gifts to charities, gifts to be used by a political organization and any medical expenses or tuition paid directly to the medical facility or education institution for another individual.

Who Needs Estate Planning Help for Estate Tax and Gift Tax Concerns?

In short, everyone. Estate planning law is a complicated financial and legal process, and without intricate knowledge of how the process functions, you could leave your loved ones without the benefits they deserve or they could end up paying a lot more in taxes than you anticipated. Let estate lawyer Michelle Lanchester help you arrange for the continued well-being of your loved ones. Contact our Washington DC estate planning attorney today to get the solutions you need for your estate planning concerns.

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