A federal tax on the transfer of wealth potentially imposed on the value of all qualifying lifetime gifts and all estate assets owned by a taxpayer at the time of death. Learn more about federal gift and estate taxes in this presentation.

1. 528 College Road Greensboro, NC 27410 ❍ Phone: (336) 547-9999
Tips for Choosing the Right One
FEDERAL GIFT AND ESTATE
TAXES

2. 528 College Road Greensboro, NC 27410 ❍ Phone: (336) 547-9999
PROTECTING YOUR HARD EARNED ASSETS
You worked hard all your life, saved on a regular
basis, and invested prudently.

3. 528 College Road Greensboro, NC 27410 ❍ Phone: (336) 547-9999
Understandably, you don’t want to
see your assets disappear at the last
minute because you owe Uncle Sam
a hefty tax bill

4. 528 College Road Greensboro, NC 27410 ❍ Phone: (336) 547-9999
That could, however, happen to
your estate if you fail to plan for the
impact federal gift and estate taxes
could have on your estate

5. 528 College Road Greensboro, NC 27410 ❍ Phone: (336) 547-9999
DO YOU WANT TO GIVE AWAY 40 PERCENT OF
YOUR ESTATE?
Are you prepared to lose 40 percent of your estate
to taxes?

6. 528 College Road Greensboro, NC 27410 ❍ Phone: (336) 547-9999
Did you know the federal gift and
estate tax rate is permanently set at
40 percent?

7. 528 College Road Greensboro, NC 27410 ❍ Phone: (336) 547-9999
Is your estate protected against
owing gift and estate taxes?

8. 528 College Road Greensboro, NC 27410 ❍ Phone: (336) 547-9999
If the answer to any of these
question is “no” you need to
continue reading

9. 528 College Road Greensboro, NC 27410 ❍ Phone: (336) 547-9999
WHAT IS THE FEDERAL GIFT AND ESTATE TAX?
A federal tax on the transfer of wealth

10. 528 College Road Greensboro, NC 27410 ❍ Phone: (336) 547-9999
Potentially imposed on the value of
all qualifying lifetime gifts and all
estate assets owned by a taxpayer at
the time of death

11. 528 College Road Greensboro, NC 27410 ❍ Phone: (336) 547-9999
Must be paid prior to assets being
transferred out of the estate during
the probate of the estate

12. 528 College Road Greensboro, NC 27410 ❍ Phone: (336) 547-9999
HOW IS THE FEDERAL GIFT AND ESTATE TAX
CALCULATED?
The value of all gifts you made during your
lifetime is calculated

13. 528 College Road Greensboro, NC 27410 ❍ Phone: (336) 547-9999
The value of all assets owned by you at the time of
your death is also determined, including real and
personal property as well as tangible and intangible
assets.
The two values are added together. The total is the
starting point for calculating any federal gift and
estate tax owed by your estate.

14. 528 College Road Greensboro, NC 27410 ❍ Phone: (336) 547-9999
JAMES AND SUSAN – AN EXAMPLE
By way of illustration and to find out how the gift
and estate tax works in real life, assume that
James and Susan are married.

15. 528 College Road Greensboro, NC 27410 ❍ Phone: (336) 547-9999
Susan recently died leaving behind an estate valued
at $7 million. James also owns separate assets
valued at $6 million.
Susan also made qualifying gifts (with few
exceptions, all gifts are “qualifying gifts”) during her
lifetime valued at $2 million

16. 528 College Road Greensboro, NC 27410 ❍ Phone: (336) 547-9999
For federal gift and estate tax purposes, Susan has a
taxable estate of $9 million.
Without any further considerations, Susan’s estate
would lose $3.6 million to gift and estate taxes ($9
million x 0.40 = $3.6 million)

17. 528 College Road Greensboro, NC 27410 ❍ Phone: (336) 547-9999
FACTORING IN THE LIFETIME EXEMPTION
Each taxpayer is entitled to exempt up to the
lifetime exemption limit before gift and estate
taxes are levied on the estate.

18. 528 College Road Greensboro, NC 27410 ❍ Phone: (336) 547-9999
Historically, the lifetime exemption limit fluctuated
wildly.
The American Taxpayer Relief Act of 2012 (ATRA)
permanently set the lifetime exemption limit at $5
million, adjusted annually for inflation.
For 2016, the lifetime exemption limit is $5.45
million.

19. 528 College Road Greensboro, NC 27410 ❍ Phone: (336) 547-9999
SUSAN’S ESTATE AFTER THE LIFETIME EXEMPTION
Susan’s estate is entitled to deduct $5.45 million
using the lifetime exemption.

20. 528 College Road Greensboro, NC 27410 ❍ Phone: (336) 547-9999
Susan’s taxable estate is now at $3.55 million
Susan’s estate now owes $1.42 million in gift and
estate taxes instead of $3.6 million, a savings of
over $2 million.

21. 528 College Road Greensboro, NC 27410 ❍ Phone: (336) 547-9999
CAN SUSAN USE THE MARITAL DEDUCTION?
The unlimited marital deduction allows a
taxpayer to leave an unlimited amount of assets
to a surviving spouse tax-free.

22. 528 College Road Greensboro, NC 27410 ❍ Phone: (336) 547-9999
The deduction only applies if the surviving spouse is
an American citizen or permanent resident.
Relying on the marital deduction often results in
over-funding the surviving spouse’s estate.

23. 528 College Road Greensboro, NC 27410 ❍ Phone: (336) 547-9999
WHAT HAPPENS IF SUSAN USES THE MARITAL
DEDUCTION?
Susan’s estate could use the unlimited marital
deduction to transfer all Susan’s assets to James
without incurring any federal gift and estate
taxes.

24. 528 College Road Greensboro, NC 27410 ❍ Phone: (336) 547-9999
Susan would still have to use $2 million of her
lifetime exemption for the gifts she made during her
lifetime though.
Remember, however, that James also owns separate
assets valued at $6 million.
Combined with Susan’s gifts from her unlimited
marital deduction, James’s estate is now worth $13
million.

25. 528 College Road Greensboro, NC 27410 ❍ Phone: (336) 547-9999
Using the marital deduction has now over-funded
James’s estate, essentially accomplishing nothing
more than delaying the impact of gift and estate
taxes.
After deducting his lifetime exemption, James
would owe taxes on $7.55 million, leaving a tax
obligation of $3.02 million.

26. 528 College Road Greensboro, NC 27410 ❍ Phone: (336) 547-9999
CAN “PORTABILITY” HELP?
ATRA also made the concept of “portability” a
permanent feature of federal gift and estate taxes.

27. 528 College Road Greensboro, NC 27410 ❍ Phone: (336) 547-9999
Portability allows a surviving
spouse to make use of any unused
portion of a deceased spouse’s
lifetime exemption

28. 528 College Road Greensboro, NC 27410 ❍ Phone: (336) 547-9999
APPLYING PORTABILITY TO SUSAN’S ESTATE
Because Susan only used $2 million of her
lifetime exemption to cover the gifts she made
during his lifetime, the remaining $3.45 million
of her lifetime exemption could be “ported” to
James for his use

29. 528 College Road Greensboro, NC 27410 ❍ Phone: (336) 547-9999
Combined with his own lifetime exemption of $5.45
million, James now has an exemption of $8.9
million.
James’s taxable estate is now reduced to $4.1
million ($13 million - $8.9 million)

30. 528 College Road Greensboro, NC 27410 ❍ Phone: (336) 547-9999
James’s estate would owe federal gift and estate
taxes of $1.64 million instead of $3.02 million.
Since Susan’s estate paid no gift and estate taxes,
the couple has paid a total of $1.64 million in
federal gift and estate taxes – money that could
have been passed on to beneficiaries or heirs of the
estate had they planned ahead and considered the
tax implications of their transfer of wealth.

31. 528 College Road Greensboro, NC 27410 ❍ Phone: (336) 547-9999
WHAT IF SUSAN AND JAMES HAD USED THE
ANNUAL EXCLUSION?
Although there are many ways to reduce your
estate’s exposure to federal gift and estate taxes,

32. 528 College Road Greensboro, NC 27410 ❍ Phone: (336) 547-9999
consider how Susan and James
could have significantly reduced the
amount their estates paid in taxes
by taking advantage of the annual
exclusion:

33. 528 College Road Greensboro, NC 27410 ❍ Phone: (336) 547-9999
Annual exclusion allows a taxpayer to make gifts of
up to $14,000 each year to an unlimited number of
beneficiaries -- tax-free.
A married couple may combine gifts using the “gift
splitting” option to make gifts of up to $28,000.
Gifts made using the annual exclusion do not count
toward your lifetime exemption limit.

34. 528 College Road Greensboro, NC 27410 ❍ Phone: (336) 547-9999
If Susan and James had used the annual exclusion
to make gifts to their four children for the ten years
prior to Susan’s death, they would have been able to
transfer an additional $1.12 million tax-free.
Their overall taxable estate would have been
reduced from $4.1 million to $2.98 million.
Their gift and estate tax bill would have decreased
from $1.64 million to $1.192 million, a savings of
almost half a million dollars.

35. 528 College Road Greensboro, NC 27410 ❍ Phone: (336) 547-9999
If you have questions regarding
federal estate and gift taxes, or any
other estate planning matters,
contact us online or call us at (336)
547-9999 for a free consultation

36. 528 College Road Greensboro, NC 27410 ❍ Phone: (336) 547-9999