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Understand the Gift Tax in three steps

How much can I give and not pay taxes?

For year 2015 California residents may give up to $5.43 million in inheritance money without having to pay taxes on it. If your estate exceeds that amount the estate tax rate is 40 percent.

Does this amount change?

You bet your bottom dollar. As per the American Taxpayer Relief Act this exemption changes and is adjusted or "indexed" for inflation. The exemption amount has gone up every few years.

If I don’t use it all does it transfer?

Funny you should ask. Yes the “unused” portion of a spouse’s exemption is portable to the other spouse.

As you may be aware, estate taxes are levied after death. They are based on the value of the deceased’s estate before it gets transferred to the heirs.

As we mentioned above, the amount for 2015 is $5.43 million. But spouses share assets and because of that asset transfers from one spouse to another are estate tax exempt. That means this amount soars to $10 million.

  • Bonus: What if I leave my estate to charity?

This is known as a testamentary gift. The laws regarding this type of gift can change year to year. By understanding the current tax rate and laws regarding charitable giving and estate taxes you may be able to give a greater gift than you had originally thought.

If you plan on giving all or some of your estate to a church, school or other non-profit it’s important to include language specifying what the gift is and how it is to be allocated to your chosen beneficiary.

To ensure your wishes are carried out when leaving sizable gifts you should enlist the help of an experienced tax and estate attorney.

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