Nearly every time I ask an estate planning client, “What concerns you most?” the answer is “Taxes!”
And nearly every time, I get to tell them, “Stop worrying! Death taxes aren’t an issue for you or your family.”
The good news is that the Indiana Inheritance Tax was abolished in 2013. So if you die today, your heirs won’t owe the State of Indiana any inheritance tax – no matter how big your estate.
And here’s more good news. Unless you have more than $5.4 million to pass to your heirs, there’s no federal estate tax due either. And if you’re married, you and your spouse can have more than $10.9 million pass to your heirs without any federal estate tax due. So far, none of my clients have had enough assets to trigger estate taxes.
I guess that’s the “bad” news behind the good news. Most people aren’t going to owe estate taxes because they’re too “poor” to owe the tax. So when you hear politicians saying they’re going to help taxpayers by eliminating or reducing estate taxes, remember that the only people they’re helping are multi-millionaires.
Congress could always change its mind and impose estate taxes on people with smaller estates. But at least for now, the vast majority Hoosiers don’t need to waste time or money trying to “avoid” death taxes. You won’t owe them anyway.
There are other types of taxes to be concerned about, of course. If you own property in another state, inheritance taxes may be due there. There are income taxes, property taxes, sales taxes and capital gains taxes you may need to address here in Indiana, too.
I have some more good news about gift taxes, though.
Many people will tell you, “You can’t give away more than $14,000 to any one person in any one year.”
That’s not true!
You can give away as much money as you want to any one person in any year. It’s true that if you give away more than $14,000 to someone in one year, you’ll have to file a gift tax return. But you don’t owe any gift tax unless you’ve give away a total of $5.4 million over the course of your lifetime! And the person who receives the gift doesn’t owe any gift tax, no matter how much he or she receives.
The reason you have to file a gift tax return if you give more than $14,000 to someone in a single year is that the IRS wants to add all those gifts together as time goes by. If the total reaches more than $5.4 million, only then do you owe gift taxes. Until then, the gift tax returns you file will show zero taxes due.
There are other reasons not to give money away, of course.
First, you may need that money yourself sometime.
Second, you may be “enabling” someone who needs to learn how to earn their own way and spend their money wisely.
Third, if you make a gift less than five years before you need long-term care, that gift can make you ineligible for benefits that would help pay for your care.
Finally, if you give an asset to a family member while you are alive, rather than leaving it to them in your estate plan, it may cause that family member to owe more capital gains taxes.
If you’d like to know more about these issues, estate planning in general, or how to pay for long-term care, speak with an attorney who focuses on these matters. If you’d like to know more about taxes and how to reduce or avoid them, speak with a qualified accountant, tax advisor or financial advisor.