e TMaking the most out of certain tax exemptions, like gifting, combined with taking steps to prevent costly oversights could prevent an estate from paying more tax than absolutely necessary, according to the professionals at Atlantic Trust, the U.S. private wealth management division of CIBC (NYSE: CM) (TSX: CM).
At death, an individual’s estate is potentially subject to two federal taxes: Estate tax and Generation Skipping Tax (GST). These taxes have the potential to consume a huge portion of the inheritance intended for surviving family members. On top of that, many states impose a separate estate tax of their own.
“There are basic, smart steps that you can take to mitigate the impact of these taxes on your estate,” says Paulina Mejia, managing director for Atlantic Trust.
One way is to take full advantage of the federal exemption amount—what each individual can give away at death without triggering estate tax—through careful estate planning with the help of a qualified professional, says Mejia. The federal exemption amount is currently set at $5.34 million.
Another way to minimize federal estate taxes is to make annual exclusion gifts, she says. Currently, individuals generally can give up to $14,000 per year to as many recipients as they like without incurring a gift tax. Married couples can combine their annual exclusion amount to give up to $28,000 per person tax-free—a practice known as gift-splitting. These gifts do not count against the $5.34 million gift-tax exemption.
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