Estate Tax Planning in 2016


Estate tax planning may not be on the radars of most Americans because of the $5.45 million federal estate and gift tax exemption. However, for high net worth individuals, 2016 should be business as usual. Here are some estate tax planning strategies for 2016.

2016 State Estate Tax Planning Strategies

Many American families won’t be subject to federal estate taxes in 2016. Those who live in states without a state estate tax may never pay one penny in estate taxes. For individuals with estates under the federal exemption but
who live in states with a state estate tax, the name of the game becomes state estate tax planning. Therefore, moderately wealthy Americans aren’t out of the woods in 2016 and their estate planning strategies should account for
state tax laws.

High Net Worth Individuals Have At Least $20,000 More to Plan With in 2016

Even individuals who took advantage of 2015’s entire $5.43 million federal lifetime gift tax exemption have an additional $20,000 of exemption to work with this year, along with 2016’s $14,000 per donee gift tax annual
exclusion. These amounts may be used for almost any planning purpose and can facilitate tax efficient lifetime transfers of assets such as shares of small business stock and collectibles. And, because both the annual exclusion and the exemption are indexed annually for inflation, it may be prudent to continue to keep a watchful eye on asset values and annual exclusion and exemption amounts to reap maximum tax savings.

ILITs Should Be Even More Attractive to High Net Worth Clients in 2016

High net worth individuals should continue to use irrevocable life insurance trusts so that the death benefit is not included in their taxable estate and for liquidity to pay estate taxes. Also, whole life insurance is an excellent
income tax planning mechanism for high net worth individuals. Cash value growth in whole life policies is not subject to income taxes and can be accessed in a tax-advantaged manner.

Review (and Revise if Necessary) All Estate Planning Documents

All individuals, regardless of net worth, should be encouraged to update their wills, especially if a significant amount of time has passed or significant events have occurred after their wills were executed or last updated. Presently assessing the value of your estate will alert you to potential estate tax liability and/or estate liquidity concerns.