Georgia residents who are planning to file their 2016 federal income tax return may also be giving some thought to estate planning. At the end of the year, a person may choose to make annual gifts to loved ones as a way to reduce the size of their estate and avoid estate taxes. The Annual Exclusion Amount for 2016 is $14,000 per recipient, and the exclusion will remain at the same level in 2017.
A period of stability in the federal transfer tax system continued in 2016. This year, estates were still affected by the American Taxpayer Relief Act of 2012 that set tax exclusion amounts for gifts, estates and generation-skipping transfers. Initially set at $5 million, the estate tax exclusion limit has increased steadily to compensate for inflation. Individual estates worth no more than $5.45 million in 2016 or $5.49 million in 2017 will not incur federal estate taxes.
Though the tax system has remained relatively stable over the past few years, there could be major changes with the new presidential administration. President-elect Trump and the Republican-led House have both proposed tax reforms that include lowering the maximum tax rate from 39.6 percent to 33 percent and reducing the number of tax brackets from seven to three. Trump and the House Republicans have also both proposed a plan to eliminate estate tax and gift tax.
Changes in a person's family structure and investment portfolio may trigger the need to update an estate plan. A person might also want to update their estate plan after there are major changes in estate tax law. An attorney may be able to help a person make appropriate changes to their estate plan so that they can make the best use of the tax-saving tools that are currently available.