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Important points about estate tax planning

When it comes to planning their estates, most Texas residents want to know how they can limit the tax burdens that their heirs might face. Estate tax planning is very important for wealthy individuals to consider -- especially individuals who have estates close to or in excess of $5.43 million. Texas residents with estates this large will want to know how federal estate taxes will apply to them and develop strategies to limit these tax liabilities.

As of this date in 2015, there is no state-level estate tax that applies to Texas estates; however, if the estate exceeds $5.43 million, then federal estate taxes will apply. As of 2015, the federal estate-tax exemption is $5.43 million, so any Texas resident with an estate value that is less than this amount will not have to worry about estate taxes taking a chunk of their heirs' inheritances. Also, it is important to note that married individuals are entitled to separate federal estate tax exemptions of $5.43 million each, and any amount of the exemption not used by the spouse who dies first will be passed on to the remaining spouse.

Estate planners may also want to be aware of gift-tax exemptions. Gift taxes generally apply when a large amount of cash or assets are gifted to another individual prior to death. Under federal tax exemptions, each individual has the right to give away as much as $5.43 million during his or her lifetime. In addition, each individual has the right to give away as much as $14,000 annually, which does not count against this $5.43 million gift-tax exemption. Like the estate tax exemption, spouses are entitled to $5.43 million each in exemptions separately.

When considering estate tax planning options, Texas residents can benefit from having a clear understanding of federal laws and how they apply to their unique situations. High-net-worth individuals may want to implement various planning strategies to limit their tax liabilities if their net worth exceeds federal exemptions. Various types of trusts can often be used successfully in such instances.

Source: marketwatch.com, "3 important things to know about estate planning", Bill Bischoff, Feb. 11, 2015

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