What are some of the considerations for me in transferring assets to others during my life to remove them from my estate?
The gift tax is imposed on the transfer of money or other property during your life. You can exclude up to $14,000 of a present interest per donee per year for 2014 from the total of your taxable gifts. For gifts between spouses, a spouse can generally make unlimited gifts free of gift tax to a spouse that is a U.S. citizen and $145,000 in 2014 to a spouse that is not a U.S. citizen. Gifts to qualified charitable organizations are not included in taxable gifts. There are also exclusions for certain educational and medical payments made as gifts. Gifts exceeding these amounts will be included in your lifetime taxable gifts. The gift tax exclusion is unified with the estate tax exclusion such that there is one limit in the excludable amount of transfers during life and death.
Special limits and rules are placed on “generation-skipping” transfers, with an exemption for each individual equal to the amount exempted from estate tax by the “basic exclusion amount”, $5,340,000 in 2014, with indexing for inflation in subsequent years.
What are some of the tax-related issues that will be considered upon my death?
For income tax purposes, a final income tax return will be filed for your individual income taxes which will include the period during the year up until your date of death. From the date of death, your executor will file estate income tax returns for your estate until it is closed. Settlement usually occurs within two years.
If there are any trusts created which come into existence at your date of death, trust income tax returns will be filed until the trust is dissolved.
Your estate may be subject to a federal estate tax which applies to transfers at death and to previous taxable gifts. For a death in 2014, estate tax is imposed on estates that exceed the $5,340,000 estate tax exclusion, including taxable lifetime gifts. A surviving spouse may increase his or her exclusion amount by any unused amount of a deceased spouse that died after December 31, 2013. The exclusion amount is indexed for inflation in 2014.
Virginia does not impose estate taxes on residents; however, other states do have an estate tax.
What should I consider for making sure my tax obligations are met upon my death?
Designate in your will an executor that will work with your family members and your trusted advisors to assure that all required returns are filed timely. Keep your executor advised as to your assets and associated income and with liabilities and associated repayment schedules, so that your executor will be able to determine your tax obligations from all relevant sources.