Planning the management of one's wealth -- whether that's a little or a lot -- is a critical part of life. It is necessary for those who originated that wealth in order to make sure that they have enough cash to see them through good times and bad, through productive years and lean years, in sickness and in health. Additionally, it is important for the person's heirs so they can be well taken care of and have the opportunity to prosper.
Part of the planning process is knowing the numbers. The numbers include how much money you have now, how much money you will have in the future, and what the applicable tax rates are. The rates should influence how you apportion your funds, so that you will retain as much of your own money as you can after the government takes part of it in taxes.
One number to know is the annual gift tax exclusion. Currently, it is holding steady at $14,000. That means that you can give someone $14,000 each year tax free. An implication of that is that it might be wiser to give an heir $14,000 a year for the next 5 years and have it not be taxed instead of giving $90,000 in your will and having him or her lose some of that to taxes.
It will also be important to know that if you give gifts that are taxable, the value of those will count against your estate tax exclusion. That exclusion is at $5.43 million for 2015. That is an increase of $90,000 over 2014.
Of course, tax rates change annually and are affected by a variety of factors. Anyone planning one's estate should consult with a professional attorney specializing in the optimal ways to do so.
Source: The Motley Fool, "Estate Tax in 2015: 4 Rules You Should Know" Dan Caplinger, Dec. 28, 2014