This year the unified federal gift and estate tax exemption was increased to $5.34 million dollars. What this change means is that an individual can now give up to $5.34 million during their lifetime, or pass away with an estate valued up to $5.34 million dollars, without paying any Federal gift or estate tax. The annual gift reporting limit remains at $14,000 per person. Total annual gifts less than this amount do not need to be reported and are not subject to gift tax. Total annual gifts in excess of this amount count against the donor's $5.34 million lifetime gift exemption.
"If I'm left some money in my uncle's will, do I have to pay taxes on it?" No, but ...
A recent update in The National Law Journal, titled “Trusts and Estates Law Update - January 2014,” considered this common question.
If the estate is greater than $5.34 million under current law at your uncle’s passing, then the estate will be required to pay estate taxes. In addition, some states themselves impose an independent state estate tax. Caution: If your uncle made gifts exceeding the annual gift exclusion (i.e., $14,000 for 2014) in any given year to a beneficiary, then the amount in excess reduces the $5.34 million that can be left estate tax free at death.
Accordingly, for 2014, an individual can receive a lifetime exemption of $5.34 million. That means that you can receive up to that amount from your uncle’s estates without his estate owing any tax. If during your lifetime you are fortunate enough to receive more than $5.34 million from your uncle, then the estate would be required to pay taxes on anything above that threshold.
Spoiler alert: This area of law can get complicated.
For more information about estate planning and gift tax, please visit my website.
Reference: The National Law Journal, February 11, 2014: “Trusts and Estates Law Update - January 2014”