Estate taxes are those levied on property transfers after an estate owner’s death. These taxes are based on the asset’s fair market value and are imposed on the estate rather than on the beneficiary. Included assets are real estate, cash, securities, insurance, business interests and annuities. To decrease estate taxes, many people give gifts to reduce the estate’s value before their deaths; however, tax laws can revoke certain gifts and impose estate taxes if the gift is made too close to the person’s date of passing.
How Do Estate Tax Laws Handle Gifts Given Within Three Years of a Death?
When a person gives a gift to another person within three years of their death, that gift’s value is included in estate tax calculations. For the rule to apply, the gift must be the property that would have been included in the estate. If the gift is exempt from estate taxation because it doesn’t exceed the annual exclusion amount, it will not be included in calculations.
Exceptions to the Rule
The revocable trust provides an exception to the rule above. Revocable trusts are created during a person’s lifetime, and they allow the person to retain control of the trust’s assets as long as they live. For the purpose of estate taxation, the person creating the trust must pay estate taxes if they retain control until they pass away.
The three-year gift rule doesn’t apply if the owner of the trust gives a gift to another person. A gift cannot be included in the estate tax calculation even if it is given within three years of the trust owner’s death.
Does a Person Always Need an Estate Planning Attorney?
A free consultation with an estate-planning lawyer in Chico, CA can help a client build an estate plan that matches their needs and those of their loved ones. A lawyer with can help a person choose the right type of trust or will, and they will do everything possible to limit a person’s tax liabilities at the time of their passing. By hiring an estate planning lawyer in Chico, CA, the owner of the estate can greatly simplify things for those they leave behind.
