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Estate planning tax rates and exclusions in 2016

Florida residents concerned about tax exposure often revisit their important estate planning documents on a regular basis to see if revisions have been merited by changes in the federal tax laws. Some individuals feel that their estates are unlikely to ever be valuable enough to warrant such comprehensive tax planning, but rising real estate values could make these arguments seem less convincing as time passes.

Some changes, such as increases to the lifetime estate tax exemption, are now made every year according to the rate of inflation. The exemption in 2016 will be increased from $5.43 million to $5.45 million, but it was a mere $1.5 million just a decade ago. While the inflation rate was enough to increase the lifetime estate tax exemption by $20,000, it was not high enough to increase the $14,000 that can be given as gifts each year without penalty.

Those with estates valued at more than the estate tax exemption will still be taxed at a maximum rate of 40 percent in 2016. Estates have been taxed at rates as high as 55 percent in the past. Some previous changes made to estate planning laws are still in effect in 2016. Any portion of the lifetime estate planning exclusion unused by a decedent's estate can still be passed to their surviving spouse, but the estates concerned must make an election in order to pass on their unused exclusion amounts.

The goal of an effective estate plan is to ensure that the wishes of the testator are followed while exposure to taxes and other costs is reduced. There are several federal and state laws that may impact this strategy, and attorneys with experience in this area could advise their clients to regularly go through their important estate planning documents.

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