Gifting, in the context of estate planning is one of the most effective means of reducing estate and inheritance tax, yet many people are unsure of how it all works. As elderly law and estate planning attorneys in New Jersey we can shed some light on the key benefits and features of gifting.
In New Jersey, gifting has become even more important as it is one of the few states that impose a state estate tax in addition to federal estate taxes on people who live in New Jersey, own property here or are leaving property to an inheritor who is not a close relative.
The annual exclusion gift amount is determined each year by the Internal Revenue service (IRS). In 2015, this amount is $14,000 and it can be given freely to as many family members or friends as you would like without impacting on the lifetime fit exemption. Spouses can also combine this amount into donations of $28,000 per gift per person.
The federal lifetime gift tax exemption is an amount the IRS determines year by year that an individual can leave their inheritors without being subjected to federal estate tax. This year it is set at $5.34 million and, because it is determined on an individual basis without regard to matrimonial status, a husband and wife will each get their own exemption. By tracking this sum, you can make the most of lifetime giving opportunities as well through a dedicated trust by increasing the gifts to the trust until they reach the amount determined by the IRS.
Other ways of utilizing gifting include donations towards medical and dental expenses for friends and family by paying the provider directly. You can also fund section 529 college plans for children and grandchildren. In addition, this money grows in tax-free accounts and can be withdrawn tax-free as well, providing it is used to fund specific educational and vocational expenses.
It’s important to track your gifting carefully before you commit to any transfers, as exceeding the basic federal exclusion amount/federal lifetime gift tax exemption could mean that your estate ends up owing as much as 40% in taxes.
Knowing exactly when and where to distribute your assets is key to effective gifting – and a comprehensive estate plan managed by experienced attorneys will ensure you are kept up-to-date and in line with state and federal tax regulations. At Sedita, Campisano & Campisano, LLC, we can offer you over 30 years of estate planning experience to give you and your family the best possible results. For more information on estate planning in New Jersey, please contact us today.