The Internal Revenue Service announced today in Rev. Proc. 2019-44 the official estate and gift tax limits for 2020: $11.58 million per person (was $11.4 million in 2019). That means you can leave $11.58 million to heirs and pay no federal gift or estate tax. If you are married, the two of you can leave up to 23.16 million combined without incurring a federal gift or estate tax.
The $23.16 million number per couple isn't automatic. An unlimited marital deduction allows you to leave all or part of your assets to your surviving spouse free of federal estate tax, but to use a deceased spouse's unused exemption a special election must be made on the deceased spouse's tax return, even if no tax is due.
If you are worth less than $11.58 million (or you and your spouse are worth less than $23.15 million combined), you are not necessarily home free on the gift and estate tax front . Seventeen states and the District of Columbia levy separate estate and/or inheritance taxes, and their exemptions are often significantly lower than the federal exemption, some even as low as zero (no exemption) (See Where Not To Die In 2019).
The annual gift exclusion amount is still $15,000. This is the amount that a you can give away to each of as many individuals as you like, every year, without incurring a gift tax or using up any of your estate tax exemption. A husband and wife can each make $15,000 gifts, doubling the utility of this exemption.
But remember, this is gift and estate tax planning for the very wealthy. On the less wealthy end of the spectrum, Medicaid pre-planning is completely different, and there the $15,000 annual exemption has no application.
Finally, don't let freedom from gift and estate taxes make you lose sight of capital gains taxes. If you give away highly appreciated assets to avoid state estate tax, your beneficiaries could end up with a capital gains tax that is worse than the estate tax would have been. It's better to leave appreciated assets in your estate so they get a step-up in basis at your death.
If you are married, also remember to talk to us about making a community property election in order to get a double step up in basis at the death of the first spouse.
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