This post is long overdue but, as we know, there has been a lot of activity in the past few months for farmers and ranchers. But now that we have a Farm Bill, it is time to look at what 2014 holds for federal estate and gift tax issues.
First, the annual gift tax exclusion:
We’ve previously discussed the annual gift tax exclusion. For 2014, the annual gift tax exclusion remains $14,000. What this means is that an individual can gift up to $14,000 per year to as many individuals as you’d like without tax implications. In other words, you can gift up to $14,000 per year to each of your children, each of your grandchildren, or any other individual you’d like.
Second, the unified credit:
There is another gift tax issue beside the annual gift tax exclusion — for gifts over $14,000 to an individual in a year. This is the estate and gift tax, or more commonly known as the unified credit. For 2014, the estate and gift tax exclusion is $5.34 million.
But what does that mean? It means an individual can gift up to $5.34 million dollars before any gift tax will be assessed. It also means an individual can transfer $5.34 million at death before any estate tax will be assessed. It also means that the gift tax and estate tax are unified, meaning an individual can only gift or transfer $5.34 million before the tax is assessed. In other words, an individual can gift $2 million and transfer $3.34 million and no tax will be assessed. Alternatively, if an individual gifts $3 million and transfers $3.34 million, tax will be assessed on $1 million ($3 million + $3.34 million – $5.34 million = $1 million).
Even if your assets and/or net worth does not approach $5.34 million (or $10.68 million if married), estate planning is well worth your time. You will still want to consider who will inherit your assets, how you want those assets inherited (e.g. will, trust, shares of a business), and, if you have minor children, guardianship. You will also want to consider the costs of probate versus the costs of trusts, powers of attorney and health care, and end-of-life care.
Estate planning is for everyone, not just those who may have assets that go above the federal estate and gift tax exemption of $5.34 million. It is worth the time to consider what you need and want and then take the necessary steps to ensure those needs and wants can and will occur.