Leaving an inheritance to your kids can be more complicated than expected – especially if you are unfamiliar with the current estate tax exemption.
For 2016, the estate tax exemption is $5.45 million per individual, $10.9 million per married couple. That means a single person can leave up to a $5.45 million inheritance and the heirs will not owe taxes. The same goes for a couple that leaves up to $10.9 million in assets. Anything above may be subject to estate taxes – up to a 40 percent tax rate.
If you plan to leave an inheritance, then it’s also important to note that estate tax exemptions fluctuate per inflation, so amounts may change from year to year.
What about gifting?
If you have ever gifted money (you are allowed $14,000 per recipient per year), then this applies to the estate tax exemption amount.
For example, let’s say you gifted $20,000 in your lifetime. You want to leave the maximum-allowable, tax-free inheritance for your beneficiaries. The maximum amount your heirs can inherit without paying taxes is $5.25 million from an individual, or $10.88 million from a couple. All gifts are deducted from the exemption amount before taxes kick in.
If you have questions about inheritance or estate taxes, you may want to consider talking to an estate planning attorney who can explain all of the nuances and what you need to consider.