Estate Planning in 2016 — What To Know in the New Year

Keeping abreast of changes in the financial landscape is a critical part of estate planning. Estate planning is dynamic, and its laws fluctuate from year to year. Whether you are making an estate plan for the first time or updating documents for 2016, the information below is critical.

Lifetime & Annual Gift Tax Exclusions

In 2016, the lifetime exclusion for gifts and estate transfers made during the holder’s lifetime will increase by $20,000 to $5.45 million to keep pace with inflation. This means that the holder, while living, is allowed to make charitable gifts and transfer property to their heirs up to this valuation without incurring tax penalties.

The figure’s rapid rise (up $3.95 million in just over ten years) has imbued many individuals with a false sense of security when it comes to managing their estate. They ask themselves, “Why go through the trouble of managing my estate when an instant transfer is available?” It’s important to remember that taxability is only a small part of the picture, and solid estate planning will account for all assets and arrange for them to be distributed to the designated heirs—even when complications arise.

The annual exclusion amount for gifts will remain unchanged in 2016 at $14,000 per year. This figure does not include medical or tuition payments made on behalf of another, provided they are transferred directly to the institution and not the individual. Tax law also provides an opportunity for smaller transfers above the $14,000 between spouses.

Effective Tax Rate for Estates

While estate tax bracketing may seem complex at first look, lifetime exemption factors are simple in practice. A flat 40% rate applies to any amount that is taxable within the realm of estate taxes. However, this figure is a relatively new development, and it is pertinent to those administering the estate of someone who has passed away. If the deceased estate holder made taxable gifts during the time period when higher rates (up to 55%) were in effect, it’s possible that the administrator has overpaid with regard to their final liability. Cohen & Burnett can carefully examine both the present holdings and any past gifts to ensure that the amount paid matches up with the amount owed.

State Gift and Estate Tax Laws

The numbers cited heretofore are the figures that apply to federal estate regulations, but annual and lifetime exclusion limits vary wildly from state to state. Like federal estate regulations, state exclusion limits are subject to change. Maryland and New York have both increased their respective exclusion amounts as recently as 2014, while other states like Indiana, Oklahoma, and Tennessee have moved to repeal estate taxes altogether.

Tax Season with Cohen & Burnett

Cohen & Burnett’s team of legal and tax experts has provided Washington, D.C. with retirement planning, estate planning, tax preparation, and more for over 25 years. Please visit our homepage or contact us directly for more information.



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