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Estate planning and annual gifts

Recently on this blog, we discussed the federal estate tax and noted that its exemption is now set at $11.4 million. Since Texas has no state estate tax, and few Texas individuals leave behind an estate worth more than $11.4 million, most Texas families need not concern themselves with estate taxes when they are preparing their estate plans.

However, there are many Texas property owners whose real estate holdings could put their estates above the exemption amount. A feature of many estate plans allows people to avoid estate tax through giving gifts to their loved ones during their lifetimes. By giving the money away during their lifetimes, they reduce their estates below the exemption amount, thus ensuring that their assets avoid the estate tax.

However, large gifts can trigger another federal tax known as the gift tax. The donor is responsible for paying this tax.

Technically, any gift is considered taxable, but there are many exceptions. For example, a gift to a spouse is considered an exception. A gift below the annual exclusion amount for the calendar year is also considered an exception, and therefore free from gift tax.

For 2019, the annual gift tax exclusion is set at $15,000. This means an individual can gift up to $15,000 to someone else without triggering the gift tax. A married couple can gift up to $30,000.

Many clients confer with an estate planning attorney to plan annual gifts to their adult children or other loved ones. When executed carefully, annual gifts can be an important way of providing for loved ones and maximizing a legacy.

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