It depends on the circumstances. Assets left to your spouse (if he or she is a U.S. citizen) or any charitable organization will not be subject to estate tax. Assets left to anyone else — even your children — will be taxed if that portion of the estate (including gifts made during lifetime) totals more than the lifetime gift and estate tax exemption (which is $11.4 million in 2019). For estates that approach or exceed this amount, significant estate taxes can be saved by proper estate planning before your death or, for couples, before one of you dies.
In addition, while you are living, you can give away as much as $15,000 a year to each of your children or to anyone else without incurring gift tax. (This annual gift tax exclusion amount is also indexed for inflation.) You could also pay your grandchild’s college tuition or medical insurance premiums (or anyone’s tuition or medical bills, for that matter) free of gift tax — but only if the payments are made directly to the educational institution or medical provider. Gifts in excess of the annual exclusion amount reduce ones “estate tax exemption” and should be reported to the IRS. Keep in mind that tax laws often change. Estate planning for tax purposes must take into account not only estate and gift taxes, but also income, capital gains, property and generation skipping taxes as well. Qualified legal advice about taxes and current tax law should be obtained from a competent lawyer during the estate planning process.
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