Understanding Estate Tax Exemptions
One of the most high-profile estate mishaps in recent memory occurred in 2013 after the passing of Sopranos star James Gandolfini. His estate was valued at $70 million, but because of some mistakes along the way, $30 million of that went directly to the IRS. This is a common mistake for many people drafting wills. Because this happened to such a well-known celebrity, it shines a spotlight on the potential pitfalls of estate planning.
While Gandolfini might have had other priorities regarding his estate plan than being tax efficient, it’s important to understand what could have been done differently to avoid your own crippling estate taxes:
- Gifts: You can leave up to $14,000 — or $28,000, if you combine with a spouse — worth of untaxed money per year to as many individuals or charitable organizations you want at a time. This can be a way to slowly hand out estate money to loved ones without the threat of taxes. The only downside to the gift system is that it is only valid while you are alive.
- Marital exemption: All money left to a spouse is completely free of taxes, just as long as the marriage is legally binding and both spouses are U.S. citizens.
- Charitable exemption: All money and property that is left to a tax-exempt charity will not be hit with an estate tax.
- Estate value exemptions: In 2013, the federal tax exemption for an estate was $5.25 million, but New York’s state tax emption was $1 million. So, if your estate is valued at less than those amounts, you are exempt from all estate taxes. Anything over this number, and you will be charged, depending on the final amount.
An experienced probate and wills law firm can help you find the most cost-effective ways to set up your estate and preserve your legacy for your loved ones.