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Examining the important tax exemptions in estate planning

Delaware County residents may be interested on how to avoid certain taxes through proper estate planning. Without careful planning and preparation, the estate and gift tax that must be paid when these assets are inherited can be burdensome. However, three important tax exemptions might help to minimize this tax burden.

The first is known as the estate tax exemption. This allows someone who is passing on their estate to avoid estate taxes on the first $5.43 million of value in the estate. When that person is married, each spouse is entitled to their own $5.43 million in exemptions, bringing the total to $10.86 million in exemptions from estate tax. This total even applies if one spouse passes away first and doesn't use their entire half, allowing the surviving spouse to use the remainder of their spouse's exemption.

A second important tax exemption is called the gift tax exemption. This exempts gift taxes on up to $5.43 million worth of gifts given to others during a person's lifetime.

For those whose estates are valued at higher than these exemptions, a third tax exemption may be even more important. Tax law allows gifts of up to $14,000 to be given to individuals each year without impacting the $5.43 million exemptions. In order to minimize the tax impact of passing on an estate that is worth more than the other two exemptions, smaller gifts may be given annually to multiple individuals. This helps to chip away at the taxable estate prior to a person's death.

Understanding all of the intricacies of estate tax planning can be difficult, and the assistance of an attorney might be a consideration. The attorney may be able to counsel a person on the appropriate plan and draft the documents in order to put that plan into action.

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