Estate planning is essential, and something that everyone should consider doing. Because life can be unpredictable, there is no dedicated age or amount of wealth that a person has as a limiting factor with regard to the distribution of their assets when they pass on.
Proactively working out the details of one’s wealth can help ensure that loved ones and those that you intend to inherit your personal effects can be done with the least amount of taxation and other residual costs.
Developing an effective and comprehensive estate plan can be a challenging task without the right assistance. If you live in or near Libertyville, IL, then Orlowsky & Wilson, Ltd. have experienced estate planning attorneys in Libertyville that can help you put together a suitable and customized plan to meet your needs.
What is a Gift Tax and How Does it Work?
There are specific taxes that can be placed on some gifts. The party that assumes the gift tax is the person who is conferring the gift. The recipient of the gift is not taxed. Gifts that fall under gift tax laws are those that:
● Are worth more than the federal annual exclusion
● Are given by a party that has exhausted their lifetime exclusion
Federally, in 2021, the most a gift can be worth is $15,000 per year. So, you can bestow gifts $15,000 and under to anyone you choose every year without the gift tax applying. Also, staying below this annual exclusion allows you to avoid having the gifts impact your lifetime exclusion. Couples are allowed the exclusion to be doubled at $30,000.
If you are wondering what the cap is for the Illinois gift tax, you may be surprised to know there is no gift tax in the state.
Federally, in 2021, the lifetime exclusion is $11.7 million. So, through the course of a person’s life, they will be able to avoid gifts valued up to $11.7 million. In Illinois, the state tax exclusion is $4,000,000.
What Happens if You Exceed Your Yearly Gift Tax Exclusion?
If you give a gift over the gift tax exclusion of $15,000 the overage of that gift is subject to gift taxation. As these overages add up, they will reduce your lifetime limits. This means that more of your estate will be open for taxation.
Take, for instance, the $4,000,000 lifetime limit that exists in Illinois. During the course of your life, if you have accumulated $2,000,000 of overages to the annual gift tax, this reduces your lifetime limit to $2,000,000. This means that now, your lifetime limit is lowered. Therefore, anything you have in your estate that is over $2,000,000 will be taxed. That is a much lower threshold than $4,000,000.
Speak to an Estate Planning Attorney in Libertyville Today
Understanding taxation laws is not an easy job. Luckily, the Libertyville estate planning lawyers at Orlowsky & Wilson, Ltd. can provide you with some options to minimize your estate’s tax burden. Irrevocable trusts are one such strategy to explore.
Call the Libertyville estate planning lawyers at Orlowsky & Wilson, Ltd at 847-325-5559 to learn more.