Many states have taxes designed to get in on the gifting of property during lifetime and at death. Not so in Utah. The Beehive State has no estate or gift tax. However, the federal estate and gift tax still applies to Utah residents. That said, with a bit of careful and early planning most can avoid paying even these.
The federal estate and gift taxes can be thought of this way: Each of us are pushing a cart through a grocery store of life accumulating items—assets—as we go. During our lifetime we are allowed to gift up to $14,000 per year per person without any tax impacts. Called the annual exclusion, it is currently indexed for inflation. When we die, all of the assets in our cart are subject to estate tax when they pass over the checkout stand. Each person has been given a coupon currently worth $5.45 million (indexed for inflation). This means anything up to that mark passes through without tax so long as it was not used during life through gifting in excess of the annual exclusion. Every dollar after is subject to a tax of 40 percent.
The rates for gift taxes are the same as the estate tax, hence the terminology “unified tax” system. The “coupon” is referred to as the “applicable exclusion amount” and may be used during life or at death. Under current law, a surviving spouse is allowed to preserve the unused coupon of the deceased spouse for later use, but only if he or she files an estate tax return at the death of the first.
One common question is: “What is included in one’s estate for estate tax purposes?” The answer: your entire net worth, including the face value of any life insurance in which you have any incidents of ownership at your death. Put another way, add up the value of all of your assets, subtract your liabilities, and include your life insurance at face value.
As you can see, the estate tax is a significant expense for those affected by it. If you fall into this category due to the size of your estate, careful planning is required to avoid the tax and preserve your assets for your heirs.
Have questions about a specific case? Feel free to contact Jeff for a free consultation.