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Estate Planning

Transfer Taxes

The transfer tax system consists of the estate tax (sometimes called the death tax), the gift tax and the generation-skipping transfer tax.


Will my estate have to pay taxes?

The applicable exclusion amount (the amount that can be transferred tax free) for 2015 is $5.43 million per individual or $10.84 million for a husband and wife.

Can I sell my house for $1?

You cannot sell something for less than it is worth. If you sell a $100,000 house for $1,000 you have sold $1,000-worth of house and gifted $99,000 (don't forget to file your gift-tax return).

Is life insurance tax-free?

Life insurance is income-tax free but subject to estate tax if the decedent owned or possessed "incidents of ownership." Incidents of ownership include the right to: assign, terminate borrow against the cash reserves, name beneficiaries, and change beneficiaries.

Does Alabama have an inheritance tax?

An inheritance tax, as opposed to the estate tax which is paid by the estate, is paid by the beneficiary who receives property. Alabama does not impose an inheritance tax. [Under prior tax code, states were allowed to "pick-up" a portion of the estate tax owed to the IRS.]

Can I make tax-free gifts?

A tax-free gift does not count against the applicable exclusion amount and does not require the filing of a tax return. There is an unlimited gift amount for tuition and medical expenses paid directly to the provider (not to your children). There is also the annual exclusion amount which is limited to $14,000 (2015) per donee per year.

Will my spouse have to pay estate tax if something happens to me?

There is an unlimited marital deduction; so, no, one spouse can leave the other an unlimited amount without owing estate tax. However, it is a deferral, not an exemption. Anything over the unused exclusion amount will be taxable in the second spouse's estate.

Is it better to transfer property during life (basis)?

A donor takes the donee's basis (plus tax paid on the appreciation); however, a person who takes property in respect to the owner's death takes a "date of death" basis. [If you bought stock for $60 (basis) and sold it for $100 you would have a $40 taxable gain. Return of basis is not taxable.] For example, if dad had a $500,000 farm he bought 20 years ago for $200,000 and he gave it to his son before he died, the son's basis would be $200,000 and if he sold the farm he would have a taxable gain of $300,000. On the other hand, if dad rented the farm to his son and left it to him in his will the son's basis would be $500,000 and if he sold the farm he would owe little or no taxes.